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The Effect of Required Minimum Distributions on Intergenerational Transfers
By: Jonathan M. Leganza
How do households use retirement savings accounts in retirement? The answer to this question is important for tax policy pertaining to retirement savings. I shed light on this question by studying how households respond to Required Minimum Distribution (RMD) regulations, which mandate withdrawals from retirement accounts upon reaching a specified age. Using data from the Health and Retirement Study and a regression discontinuity design, I estimate the causal effects of aging into RMD regulations. First, I establish the direct effects of RMDs in my setting and show a sharp increase in withdrawals from Individual Retirement Accounts (IRAs). Next, I provide new evidence on the indirect effects of RMDs and show a concurrent, discontinuous increase in inter vivos transfers. The results indicate that some households ultimately use IRAs to facilitate intergenerational gifts, holding wealth in the tax-advantaged accounts until required to take distributions and then passing resources to children.
Source: @SSRN
