Working Paper

Portfolio choice in tax-deferred and Roth-type savings accounts

Abstract: This paper uses numerical methods to compare optimal portfolios in tax-deferred and Roth-type savings accounts. Income and payroll taxes affect optimal portfolios in tax-deferred and Roth-type plans differently. For workers with assets in only one type of plan, the optimal equity share in a tax-deferred account could be higher or lower than in a Roth, depending on initial wealth. The differences in optimal portfolios between plans are large at short investment horizons but smaller at longer horizons. This paper also studies the 'asset location' decision of workers with assets in plans of both types.

Keywords: Individual retirement accounts; Retirement; 401(k) plans;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2003

Number: RWP 03-08