Do ‘Catch-up Limits’ Raise Retirement Saving? Evidence from a Regression Discontinuity Design

Abstract

This paper studies the effect of raising contribution limits on retirement saving by exploiting the ‘catch-up limit’ provision, a rule which allows those over the age of 50 to make higher IRA and 401(k) contributions than those under 50. Using an age-related regression discontinuity design, I find that eligibility for ‘catch-up limits’ leads to a large increase in total tax-deferred contributions for those without access to a 401(k) plan. This is driven by a 25 percent increase in average IRA contributions and a 21 percent increase in the likelihood of making an IRA contribution. I also find no significant effects on overall 401(k) contributions. The findings suggest that, contrary to the neoclassical life-cycle model, the response to eligibility for ‘catchup limits’ was not limited to constrained savers.