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Study Finds Evidence That Tax Incentives Encourage Retirement Savings

A new study from the Center for Retirement Research at Boston College found some evidence that the $61.4 billion government subsidy on 401(k)  plans may be effective in encouraging retirement saving. The study examined the effect of the 2001 enactment of a “catch-up provision” which increases the maximum tax-deferred contribution for those over 50 (to $23,000 versus $17,500 in 2014). The study found that individuals over 50 that made retirement contributions close to the contribution limit increased their contributions an additional $540 to $1020 when compared to those under 50.  In addition, the study found that those under 50 increased their contributions in response to the yearly inflation-related limit increase.