The effect of required minimum distributions on intergenerational transfers

TitleThe effect of required minimum distributions on intergenerational transfers
Publication TypeJournal Article
Year of Publication2024
AuthorsLeganza, JM
JournalJournal of Public Economics
Volume232
Pagination105091
ISSN Number0047-2727
KeywordsIntergenerational transfers, retirement savings, Tax policy
Abstract

Tax policy may influence intergenerational transfers, especially the method and timing of gifts. In this paper, I study how tax rules that mandate the decumulation of retirement savings accounts impact transfers from parents to children. Using data from the Health and Retirement Study and a regression discontinuity design, I estimate the causal effects of aging into Required Minimum Distribution (RMD) regulations, which mandate withdrawals from retirement accounts upon reaching a specified age. First, I establish the effects of RMDs on asset decumulation in my setting and show a sharp increase in withdrawals from Individual Retirement Accounts (IRAs). Next, I provide new evidence on the effects of RMDs on intergenerational transfers and show a concurrent, discontinuous increase in inter vivos gifts. The results indicate that some households ultimately use IRAs to facilitate within-family transfers, holding wealth in the tax-advantaged accounts until required to take distributions and then passing resources to children.

DOI10.1016/j.jpubeco.2024.105091
Citation KeyLEGANZA2024105091