The U.S. government subsidizes retirement saving through 401(k) plans with $82.7 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the "catch-up provision," which allows workers age 50 and over to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. The study finds that annual contributions increased by $818 more among age-50-plus individuals constrained by the 401(k) tax-deferral limits relative to similar workers just under age 50, suggesting that constrained individuals respond to tax incentives. For this group, the elasticity of retirement savings to the tax incentive is relatively high: a 1-percentage-point increase in the tax-deferred limit leads to a 0.2 percentage-point increase in 401(k) contributions.But barely 1 percent of lower-saving participants took advantage of catch-up contributions, suggesting that raising the 401(k) limit is not likely to be a broad-based solution to retirement saving shortfalls.

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