1997

1997

1997

2003

2003

2003

2000

2000

2000

2006

2006

2006

Traditional or Roth IRA

Employment-Based Plan

Any Retirement Plan

0 10 20 30 40 50 60

Participation in Retirement Plans as a Percentage of All Workers

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Use of 

Tax Incentives for 

Retirement 

Saving in 2006

OCTOBER 2011

© Shutterstock Images, LLC
Pub. No. 4167
The Congress of the United States 

O Congressional Budget Office

CBO

Use of Tax Incentives for 

Retirement Saving in 2006

October 2011
CBO

Notes and Definitions

Unless otherwise noted, all years referred to are calendar years. Numbers in the text, tables, and exhibits may not to totals because of rounding.Types of Tax Benefits Traditional: Retirement plans offering these benefits allow contributions to be made from before-tax income, dtaxes until the funds are withdrawn. Roth-style: Retirement plans offering these benefits require contributions to be made from after-tax income, buimpose no tax on withdrawals.Employment-Based Retirement Plans Defined-Benefit Plans: Retirement payments under this group of plans are set on the basis of formulas that typ

consider an employee’s earnings and years of service. Because defined-benefit plans do not accept before-tax contions from employees, they are categorized as noncontributory. Roth-style benefits are not available through sucDefined-Contribution Plans: Retirement payments under this group of plans are made out of accounts that conamounts contributed by the employer and the employee, and the investment earnings on those contributions. Fstudy, defined-contribution plans are further subdivided into two groups, 401(k)-type plans and noncontributodefined-contribution plans.401(k)-type plans: These plans accept before-tax contributions from employees. Many such plans also permit emto match some or all of their employees’ contributions. This category includes 401(k), 403(b), and 457 plans (alfor the sections of the Internal Revenue Code in which they are defined) and the federal government’s Thrift SaPlan. 401(k) plans are most common in the private sector, 403(b) plans are most common in the nonprofit secin public school systems, and 457 plans are most common in other state and local government units. Before 20

401(k)-type plans provided traditional tax benefits only; in 2006, Roth 401(k) plans were introduced for wage but not for self-employed people.Noncontributory defined-contribution plans: These plans do not accept before-tax contributions from employees; they are funded entirely by employers. Roth-style benefits are not available through such plans.
NOTES AND DEFINITIONS USE OF TAX INCENT

CBO

Individual Retirement AccountsTraditional IRAs: Most taxpayers who contribute to a traditional individual retirement account (IRA) are permmake before-tax contributions to that account. However, if either the taxpayer or the taxpayer’s spouse is covereemployment-based plan, some or all of those contributions may be deemed after-tax contributions, depending income (see Table A-1 of the online supplemental material for details). In such cases, the amounts contributed withdrawn tax-free, but the earnings on those contributions are taxable upon withdrawal. For this report, beforafter-tax contributions to traditional IRAs were tabulated together.Roth IRAs: The Roth-style IRA (introduced in 1998) accepts after-tax contributions only, and withdrawals are once the account is five years old. Above certain income thresholds, however, contributions are limited or disall(see Table A-1 of the online supplemental material for details).Data and Supplemental MaterialSource data: Participation in tax-favored retirement plans, contributions to such plans, and the amounts claimed saver’s credit were tabulated from a sample of 320,897 individual income tax returns for 2006 and enhanced by ing data from supplemental tax forms filed by employers and financial institutions. Details on how that databaassembled and used are presented in the appendix.Identification of Plan Types: The data did not permit the discrete identification of all types of plans. For wage 

401(k)-type plans could be identified, but it was impossible to distinguish noncontributory defined-contributiononcontributory defined-benefit plans, so both varieties were tabulated together. (Note that noncontributory pdespite their label, include plans that require employees to make after-tax contributions and pay tax on benefits excess of those contributions.) None of the different employment-based plan types could be identified for self-empeople, so all data on those workers were tabulated together. People can participate in more than one type of plan, and such participation is generally reflected in the tabulatPeople who participated in an employment-based plan along with an IRA are counted in each category, as are pwho contributed both to a traditional IRA and to a Roth IRA. The exception is wage earners who participated 401(k)-type plan and a noncontributory plan at the same time. Because they are not separately identifiable in tthose workers are counted only as participants in 401(k)-type plans. Roth 401(k) plans are not identified separathe data, but there is evidence that participation in 2006 (the first year of their existence) was low. Supplemental Material: Additional material is available online (www.cbo.gov), including detailed historical inf

tion on changes in tax provisions and on participation rates; average contributions (in nominal amounts and as a

for inflation); and percentages of people who were constrained by contribution limits for 1997, 2000, 2003, an
Preface

CBO

In 2006, more than half of all U.S. workers participated in some form of tax-favored retirement plan. This studthe fourth in a triennial series published by the Congressional Budget Office (CBO) on participation rates in ancontributions to various plans, examines data for that year. The first in the series, Utilization of Tax Incentives foRetirement Saving (August 2003), presented data from 1997; the subsequent updates presented data for 2000 anThis document was prepared at the request of the Chairman of the Senate Finance Committee. In keeping with mandate to provide objective, impartial analysis, the study makes no recommendations.Paul Burnham of CBO’s Tax Analysis Division produced the study under the direction of Frank Sammartino aJanet Holtzblatt. Frank Russek of CBO and Peter Brady of the Investment Company Institute provided useful comments. The assistance of an external reviewer implies no responsibility for the final product, which rests solwith CBO.Kate Kelly edited the document, and John Skeen proofread it. Maureen Costantino and Jeanine Rees prepared document for publication, Monte Ruffin produced the printed copies, and Linda Schimmel handled the print distribution. An electronic version is available from CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf

Director

October 2011
CBO

Exhibit 

List of Exhibits

Participation Rates and Contributions

1. Participation in Tax-Favored Retirement Plans, 2003 and 2006 2. Participation of Wage Earners in Employment-Based Retirement Plans, 2003 and 2006 

3. Participation of the Self-Employed in Employment-Based Retirement Plans, 2003 and 2006 

4. Participation of the Self-Employed and Wage Earners in Employment-Based Retirement Plans, by Income Range, 2

5. IRA Participation, 2003 and 2006 6. IRA Participation, by Income Range, 2006 7. Retirement Plan Participation, 1997 to 2006 8. Contributions by Wage Earners to 401(k)-Type Plans, 2003 and 2006 9. Contributions by the Self-Employed to Employment-Based Retirement Plans, 2003 and 2006 

10. Contributions to Traditional IRAs, 2003 and 2006 11. Contributions to Roth IRAs, 2003 and 2006 12. Average Contributions to Roth and Traditional IRAs, by Age Group, 2006 

Effects of EGTRRA’s Increases in Contribution Limits

13. Participants Making the Maximum Contribution, 2000 to 2006 14. Average Real Contributions to Retirement Plans, 1997 to 2006 
CBO

Exhibit 

LIST OF EXHIBITS USE OF TAX INCENT

15. The Effect of EGTRRA on Maximum Contributions to 401(k)-Type Plans, 2006 16. The Effect of EGTRRA on Maximum Contributions to Traditional IRAs, 2006 17. The Effect of EGTRRA on Maximum Contributions to Roth IRAs, 2006 

Use of the Saver’s Credit

18. Eligibility for the Saver’s Credit, 2003 and 2006 19. Claiming of the Saver’s Credit by Eligible Workers, 2003 and 2006 20. Eligible Contributors Claiming the Saver’s Credit, 2006 21. Average Saver’s Credits and Associated Contributions, 2003 and 2006 22. Other Features of Contributions for Which the Saver’s Credit May Be Claimed, 2003 and 2006 23. Effective Rate of the Saver’s Credit, 2006 
CBO

Use of Tax Incentives for

Retirement Saving in 2006

The federal income tax system contains two alternative types of incentives to encourage workers to save for retirement. With traditional incentives, workers make contributions (up to a statutory limit) into certain accounts from their before-tax income and defer tax payments until the funds are withdrawn. With so-called Roth-style incentives, workers contribute from after-tax income but pay no tax at the time of withdrawal. In either case, the resulting investment income is effectively earned tax-free. If the participant’s marginal tax rate is the same at the time of contribution as it is at the time of withdrawal, the tax benefits of traditional and Roth-style treatment are the same. A participant whose marginal tax rate is lower at the time funds are withdrawn would prefer traditional treatment; a participant whose marginal tax rate is higher at withdrawal would prefer Roth-style treatment.Among the retirement savings vehicles permitting a choice between traditional and Roth-style incentives are individual retirement accounts (IRAs) and (at the discretion of the employer) 401(k)-type plans. Contributions to 401(k)-type plans also can be made by employers, but such contributions can benefit only from the traditional incentive. Similarly, employer contributions to plans to which employees do not contribute (noncontributory plans) can benefit only from the traditional incentive.

This publication of the Congressional Budget Office (CBO) examines participation rates in and contributions to various plans in 2006, with some earlier data presented for comparison. Two features of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) also are analyzed: increases in contribution limits and an additional incentive created to encourage lower-income taxpayers to save for retirement that is known as the “saver’s credit.” 

Participation Rates and ContributionsIn 2006, just over half (52 percent) of all workers who filed tax returns participated in some form of tax-favored retirement plan. The highest rates of participation (64 percent and above) were seen among workers between the ages of 45 and 59; those whose income was $40,000 or more; and those who were the primary (that is, the higher) earner in a two-earner household. The lowest rates (41 percent or less) were among workers under the age of 30; those whose income was under $20,000; and those who were unmarried. Participation was concentrated in employment-based plans, with 48 percent of all workers either contributing to or being covered by such a plan (47 percent as wage earners and 1 percent as self-employed people). Only 7 percent of workers contributed to IRAs; 

some of those workeremployment-based plTwenty-nine percent returns were wage ear401(k)-type plans. Anearners who participaemployment-based plby age, income, and mplans were similar to tment plans. For emplnoncontributory planmore uniform across 401(k)-type plans con$4,350 in 2006. Averaamong older workers into higher income racontributions were $6whose income was beamong those earning butions also were highwho were either a sole they were among unmsecondary earners in tSlightly fewer workers IRAs (3 percent) than in 2006. Participation strongly associated wihighest income rangeineligible to contribut
CBO

INTRODUCTION USE OF TAX INCENT

Participation in traditional IRAs was more strongly correlated with age than was participation in Roth IRAs. Two-earner married couples who filed joint returns were more likely than other married couples or single workers to contribute to any type of IRA. Participation was lowest among unmarried workers. Contributions to traditional IRAs were larger ($2,840), on average, than contributions to Roth IRAs ($2,590). Average contributions to both types of IRAs generally increased with age and income.Overall participation in some form of tax-favored retirement plan was nearly the same in 1997, 2000, 2003, and 2006—within 1 percentage point of 51 percent. The 52 percent participation rate for 2006 represented an increase of 2 percentage points over the rate for 2003, and the change was fairly uniform across age groups and income ranges and according to marital or earner status. Between 2003 and 2006, participation in 401(k)-type plans and IRAs did not change, and participation solely in noncontributory plans increased by 1 percentage point.Average contributions to all types of plans increased in real (inflation-adjusted) terms between 2003 and 2006, reflecting mostly the scheduled increases in the maximum contribution under EGTRRA. Changes in average contributions in excess of income growth might not indicate any change in the overall saving rate; instead, the differences in average contributions might reflect the shifting of assets between taxable and tax-favored accounts. CBO did not attempt to identify what proportion of higher average contributions should 

be attributed to new saving and what represented shifting between types of accounts.

Effects of EGTRRA’s Increases in Contribution Limits Tax law has always limited contributions to taxfavored retirement plans—both in dollar terms and as a percentage of compensation. EGTRRA raised most of those limits (see the table to the right). The percentage-of-compensation limits were increased immediately by that act for 401(k)-type plans; they were already at 100 percent for IRAs. The dollar limits were increased according to a schedule (over five years for 401(k)-type plans and over seven years for IRAs) and now are indexed for inflation. Unlike most other aspects of EGTRRA, the higher contribution limits are not scheduled to expire after 2012—they were made permanent by the Pension Protection Act of 2006. Contribution limits affect the extent to which certain types of expansions in tax incentives for retirement savings increase private saving. Participants whose contributions fall below a limit would not have any incentive to save more if the limit was raised: Under current law, they could receive a larger tax benefit by saving more, but they choose not to. In contrast, participants who contribute the maximum amount allowed under current law would have an incentive to save more if the limit was raised, and they might choose to save more. Thus, the percentage of participants who already contribute the maximum amounts allowed (that is, the percentage who are constrained by the current contribution limits) represents an upper bound on 

Comparison o

Current-Law C

in 2006Source: CongressionaNote: EGTRRA = Econ

Reconciliation Aretirement acco

a. The contribution lim

estimated on the ba

the percentage of partinduced to save more Five percent of partici2006 contributed up EGTRRA. Twelve pe

Percentage of Compensation 

Dollar Amount 

Under age 50 1

Age 50 or older 1

Traditional 

Under age 50 Age 50 or older Under age 50 Age 50 or older 

Pre

Roth 
CBO

INTRODUCTION USE OF TAX INCENT

equal to or greater than the pre-EGTRRA limits and presumably would have made the maximum allowable contributions in the absence of EGTRRA. Therefore, EGTRRA reduced the proportion of participants who were constrained by the contribution limits for 401(k)-type plans by 7 percentage points. For traditional IRAs, EGTRRA reduced the proportion of participants constrained by the contribution limits in 2006 from 73 percent to 52 percent, a decline of 21 percentage points; for Roth IRAs, the corresponding proportions were 62 percent and 39 percent, for a decline of 23 percentage points.The Saver’s CreditThe saver’s credit was introduced by EGTRRA to encourage retirement saving by providing tax credits to qualifying taxpayers whose adjusted gross income falls below particular thresholds. To qualify, a worker must contribute either to a 401(k)-type plan or to an IRA. The rate of the credit is determined by a worker’s adjusted gross income and filing status, and it is applied to the first $2,000 of qualifying contributions (see the table to the right).

The saver’s credit is nonrefundable, meaning that it cannot exceed a taxpayer’s income tax liability. Thus, workers without any income tax liability cannot claim the credit, even if they make qualifying contributions. The saver’s credit originally was scheduled to expire after 2006, but it was made permanent (and the top threshold was indexed for inflation) by the Pension Protection Act of 2006.In 2006, 25 percent of all workers who filed tax returns were eligible to take the saver’s credit (down from 30 percent in 2003) on the basis of their income and tax liability. Only 20 percent of those eligible actually contributed to a retirement account (down slightly from 21 percent in 2003), and 65 percent of those who contributed claimed the credit (up from 59 percent in 2003). Taxpayers whose income was low enough to qualify for the top credit rate (50 percent) were the least likely either to make qualifying contributions or to claim the credit if they did. Those whose income placed them in the lowest bracket (10 percent) were the most likely to make qualifying contributions and to claim the credit. The average amount of the credit was $156. 

Saver’s Credit 

Ranges, 2003 (Dollars)Source: CongressionaNote: The income ran

income.

Rate of Credit 

Single 

50 Percent 20 Percent 10 Percent 50 Percent 20 Percent 10 Percent 

Fi

50 Percent 20 Percent 10 Percent 
CBO

Participation Rates and Contributions
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 1.

Participation in Tax-Favored Retirement Plans, 2003 and 2006

Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

a. Participation consists of either enrolling in a noncontributory plan or contributing to an individual retirement 

account; a 401(k)-type plan; or a self-employment SEP (simplified employee pension), SIMPLE (Savings Incentive Match Plan for Employees), or other qualified plan. 

b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

Under 30 38.9 32 41.8 3330 to 44 48.8 56 49.6 5745 to 59 39.8 63 44.7 6460 or Older 13.3 44 13.5 45

_____

_____

All Ages 140.8 50 149.6 52

Under $20,000 38.8 17 41.5 17$20,000 to $39,999 30.6 46 31.9 47

$40,000 to $79,999 37.2 63 38.6 65

$80,000 to $119,999 19.0 76 19.8 77

$120,000 to $159,999 7.2 82 7.9 81

$160,000 and Above 7.9 81 9.9 81

_____

_____

All Income Ranges 140.8 50 149.6 52

Unmarried Earners 69.8 40 74.8 41

Married Earners

Sole 21.2 52 20.0 52

Primary 24.9 72 27.4 74

Secondary 24.9 57 27.4 57

_____

_____

All Earners 140.8 50 149.6 52

Nonearning Spouses 21.2 6 20.0 7

Workers 

Income Range (2006 dollars)b

Marital and Earner Status

Age Group (Years)

2006

Number of Percentage 

Any Plana (Millions) Any Plana

Number of 

Participating in

Percentage 

Workers 

2003

Participating in 

(Millions)

In 2006, 52 percenpated in some sort plan. That rate was than the overall parboth 2003 and 200widely by age, incostatus.Participation increaage 60. In 2006, thworkers under 30 w57 percent among 64 percent among 45 percent of workpated, probably beworkers who are sebenefits rather than Participation was loincome was below 2006. In each succexcept the highest, 2006, participation highest income ranhighest range.Unmarried workermarried workers to of tax-favored plan(41 percent in 2006than among primacent) or secondary in two-earner familone-earner married 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 2.

Participation of Wage Earners in Employment-Based 

Retirement Plans, 2003 and 2006(Percentage of all workers)Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

a. Participation consists of contributing to a 401(k)-type plan during the given year.b. Participation consists of being enrolled in a noncontributory plan during the given year, while not contributing 

to a 401(k)-type plan.

c. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

Under 30 14 16 30 16 15 31

30 to 44 34 18 52 34 20 54

45 to 59 38 19 57 39 19 58

60 or Older 22 15 37 23 15 38

All Ages 29 17 46 29 18 47

Under $20,000 4 10 15 5 11 16

$20,000 to $39,999 21 21 43 23 21 44

$40,000 to $79,999 37 22 58 38 22 61

$80,000 to $119,999 51 19 70 50 21 71

$120,000 to $159,999 58 16 74 58 17 74

$160,000 and Above 57 13 69 56 14 70

All IncomeRanges 29 17 46 29 18 47

Unmarried Earners 21 16 37 22 16 38

Married Earners

Sole 30 17 46 30 17 47

Primary 47 20 67 48 20 69

Secondary 31 19 50 31 20 51

All Earners 29 17 46 29 18 47

2006

401(k)-Type 

2003

Any 

401(k)-Type Noncontributory Employment- Noncontributory

Marital and Earner Status

Income Range (2006 dollars)c

Age Group (Years)

Any 

EmploymentPlan Only Based Plan Based Plan b Plana Plan Onlyb Plana

In 2006, 47 percenemployment-based ing for more than 9ticipated in any taxgroup (29 percent to a 401(k)-type plwere enrolled in a nThe patterns of parplans—by age, incostatus—were similafavored retirement greater among worand 59 and among income of $80,000 married people, regoutstripped that of Rates of participatiplans only were fairous groups. Particip30- to 44-year-old lar to that among 4(19 percent). Particcent among workerand $79,999 per yealmost the same (2earning between $2workers earning be$119,999. There wparticipation amonearner status.Because the availabcontain enough infwho participated in contributory plans participants were cgroup only. Results pated in a noncontrreflect the patterns noncontributory pl
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 3.

Participation of the Self-Employed in Employment-Based 

Retirement Plans, 2003 and 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: Self-employed workers are those who file Schedule SE.a. Participation consists of reporting a contribution to a self-employment SEP (simplified employee pension), 

SIMPLE (Savings Incentive Match Plan for Employees), or other qualified plan.

b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

Under 30 <1 1 <1 1

30 to 44 1716

45 to 59 2 12 2 11

60 or Older 2 8 2 10

All Ages1818

Under $20,000 <1 1 <1 1

$20,000 to $39,999 <1 2 <1 2

$40,000 to $79,999 1 6 <1 5$80,000 to $119,999 1 13 1 11

$120,000 to $159,999 3 24 2 19

$160,000 and Above 7 38 7 36

All Income Ranges1 8 1 8

Unmarried Earners <1 4 <1 4

Married Earners

Sole 1818

Primary 2 15 2 13

Secondary 1 10 1 9

All Earners1 8 1 8

All Workersa

Percentage of

Income Range (2006 dollars)b

Marital and Earner Status

Age Group (Years)

2006

Percentage of

Workersa All Workersa Workersa

Self-Employed

Percentage of

Percentage of

2003

Self-Employed

Self-employed woremployment-based for a much smaller tax-favored retiremthan did wage earnemployment-based Just 1 percent of alcategory of self-empyear. Among workeincome, the particibased retirement plwas 8 percent, far bamong wage earnerExpressed as a percpeople, participatio30 age group (1 peamong 45- to 59-ycent). Among workhowever, the rate oback to 10 percentless likely (4 percenparticipate; within earners had the hig(13 percent). 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 4.

Participation of the Self-Employed and Wage Earners in 

Employment-Based Retirement Plans, by Income Range, 2006Source: Congressional Budget Office tabulations of a sample of 2006 individual income tax returns and tax 

information returns.

Notes: Figures for wage earners are not comparable to those in Exhibit 2 because that exhibit calculates 

participation as a percentage of all workers, not as a percentage of wage earners.The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts. 

All Income Ranges

$160,000 and Above

$120,000 to $159,999

$80,000 to $119,999

$40,000 to $79,999$20,000 to $39,999

Under $20,000

0 10 20 30 40 50 60 70 80 90

50

8

76

36

78

19

74

11

63

5

46

2

18

1

Percentage of the Self-Employed Percentage of Wage Earners

Rates of participatiretirement plans am2006 differed markincome, from 1 pergroup to 36 percen$160,000 or more. participation amonthe rate was relativeabove $80,000 and the highest income highest income groDespite that differeipation across incomamong wage earnerself-employed peopOverall, half of all of self-employed peemployment-based Exhibit 2, this exhirates for wage earnage of wage earnersworkers.) 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 5.

IRA Participation, 2003 and 2006

(Percentage of all workers)Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: IRA = individual retirement account; n.a. = not applicable.a. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from IRAs.

b. Participation is calculated as a percentage of all nonearning spouses, not as a percentage of all workers.

CategoryUnder 30 1 3 4 1 3 430 to 44 3 4 7 3 4 745 to 59 6 5 10 6 5 1060 to 70 9 3 11 8 3 1171 or Older n.a. 3 3 n.a. 2 2

All Ages 4 4 7 3 4 7

Under $20,000 1 1 2 1 1 2$20,000 to $39,999 3 2 5 3 3 5$40,000 to $79,999 5 4 9 4 5 9$80,000 to $119,999 5 7 12 4 8 12$120,000 to $159,999 6 10 15 6 10 15

$160,000 and Above 10 3 13 10 n.a. 10

 All Income Ranges 4 4 7 3 4 7

Unmarried Earners 2 3 5 2 3 5Married Earners

Sole 5 3 8 4 4 8Primary 5 5 10 5 5 10

Secondary 5 5 10 5 5 10

 All Earners 4 4 7 3 4 7

Nonearning Spousesb 4 26 4 3 7

Any IRA

Age Group (Years)

Income Range (2006 dollars)a

Marital and Earner Status

2003 2006

Traditional IRA Roth IRA Any IRA Traditional IRA Roth IRA

Only 7 percent of windividual retireme2006—a far lower pated in employmein either year. Parti2003 and 3 percenIRAs and 4 percent IRAs. (A small numto both types in thIn 2006, overall pahighest (11 percentthe ages of 60 and 701⁄2 cannot contrithe overall IRA parers who were 71 or that year. Participatlowest among thosamong people betwParticipation in Roamong people betwYounger workers wpate in a Roth IRA of 30 did so) than i1 percent participaipation rate in tradin the 60- to 70-yemore than twice th(3 percent).There was little difamong groups by mTen percent of memholds contributed ttype—regardless of primary or seconda
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 6.

IRA Participation, by Income Range, 2006

(Percentage of all workers)Source: Congressional Budget Office tabulations of a sample of 2006 individual income tax returns and tax 

information returns.

Notes: The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from IRAs.IRA = individual retirement account.

a. Contributions to Roth IRAs are not permitted in this income range.

All Income Ranges

$160,000 and Above 

$120,000 to $159,999

$80,000 to $119,999

$40,000 to $79,999$20,000 to $39,999

Under $20,000

0 2 4 6 8 10 12

3

4

10

6

10

4

8

4

5

3

3

11

Roth IRA Traditional IRA

a

Participation in tragenerally rose with the increase was sothan for traditional At the lower end of pation in traditionasimilar—1 percent under $20,000 and income was betweehigher income rangever, participation wthan for traditional $159,999 range, Rpeak of 10 percentin that group particAlthough people w$160,000 cannot cthere is no such res(although contribuible). Ten percent oincome range made nondeductible conaccounts. 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 7.

Retirement Plan Participation, 1997 to 2006

(Percentage of all workers)Source: Congressional Budget Office tabulations of a sample of 1997, 2000, 2003, and 2006 individual income 

tax returns and tax information returns.

Note: IRA = individual retirement account.

2006200320001997

Any Retirement Plan

2006200320001997

Employment-Based Plan

2006200320001997

Traditional or Roth IRA

0 10 20 30 40 50 60

52

5050

51

48

47

46

48

77

8

6

In 1997, 2000, 200ipation in all types plans ranged from with no discernable tion in employmeners—wage earners aalike—ranged from and IRA participatiplan or in a Roth pto 8 percent. 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 8.

Contributions by Wage Earners to 401(k)-Type Plans, 

2003 and 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

a. Average change, adjusted for inflation.b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

CategoryUnder 30 5.6 2,140 1 6.6 1,950 1 -3

30 to 44 16.6 3,860 6 16.9 3,990 5 145 to 59 15.1 4,900 6 17.8 5,340 6 3

60 or Older 2.9 4,750 5 3.1 5,910 6 8

____

____

All Ages 40.3 4,070 5 44.1 4,350 5 2

Under $20,000 1.7 720 <1 2.1 670 <1 -2$20,000 to $39,999 6.5 1,320 <1 7.4 1,290 <1 -1$40,000 to $79,999 13.7 2,820 1 14.7 2,810 1 >-1

$80,000 to $119,999 9.7 4,570 3 9.4 4,720 2 1$120,000 to $159,999 4.2 6,700 8 4.6 7,050 7 2$160,000 and Above 4.5 9,550 28 5.6 11,000 27 5

____

____

All Income Ranges 40.3 4,070 5 44.1 4,350 5 2

Unmarried Earners 14.5 3,170 3 16.4 3,210 3 <1Married Earners

Sole 6.3 5,240 8 6.0 5,940 9 4

Primary 11.8 4,990 7 13.3 5,430 6 3

Secondary 7.7 3,400 3 8.4 3,750 4 3

____

____

All Earners 40.3 4,070 5 44.1 4,350 5 2

Annual

2003 2006

Age Group (Years)

2003–2006a

Contribution,

Average

Change in

Percentage

Average

 the Maximum

 Contributing

Participants

Percentage of 

(Millions) (Millions)

Participants 

Number of

dollars)

(2006

Contribution

Income Range (2006 dollars)b

Marital and Earner Status

Participants 

Number of

dollars)

(2006

Contribution

Average

 the Maximum

 Contributing

Participants

Percentage of 

In 2006, workers ucontribute 100 perup to $15,000, to a people age 50 or olage contribution am$4,350, and 5 perctributed the maximThe higher contribers may be partly rethose groups contrtype plans. But eveof 30 and 44 made contributions ($3,9under the age of 30 with members subjthe largest average people between the $5,910 for people ations also grew fastaverage real (inflatifrom people in the by an average of 8 pthree-year period.The association bettion and income alcontribution in 20whose income was making more than average of $11,000In 2006, the averagspouse in a one-earhighest among the and earner status. Wthe primary earner $5,430, and the secan average of $3,75contributed the lea
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 9.

Contributions by the Self-Employed to Employment-Based 

Retirement Plans, 2003 and 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

a. Average change, adjusted for inflation.b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

CategoryUnder 30 <0.1 8,200 5 <0.1 10,000 10 730 to 44 0.4 13,510 9 0.3 15,000 11 445 to 59 0.7 16,040 12 0.7 17,010 13 260 or Older 0.2 15,340 9 0.3 17,020 11 4

___ ___

All Ages 1.3 14,990 10 1.3 16,370 12 3

Under $20,000 <0.1 3,390 4 <0.1 3,090 6 -3

$20,000 to $39,999 0.1 4,360 <1 0.1 4,260 1 -1

$40,000 to $79,999 0.2 6,150 4 0.2 6,150 3 <1$80,000 to $119,999 0.2 8,800 1 0.2 8,220 3 -2

$120,000 to $159,999 0.2 10,010 4 0.2 11,390 3 4$160,000 and Above 0.6 23,680 20 0.7 24,090 20 1

___ ___

All Income Ranges 1.3 14,990 10 1.3 16,370 12 3

Unmarried Earners 0.3 15,890 11 0.3 15,740 10 >-1Married Earners

Sole 0.3 20,380 17 0.3 23,340 20 5

Primary 0.4 17,820 11 0.4 19,540 13 3

Secondary 0.3 6,070 4 0.3 6,830 5 4

___ ___

All Earners 1.3 14,990 10 1.3 16,370 12 3

Income Range (2006 dollars)b

Marital and Earner Status

Annual

2003 2006

Age Group (Years)

2003–2006a

Contribution,

Average

Change in

Percentage

Average

 the Maximum

 Contributing

Participants

Percentage of 

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

Average

 the Maximum

 Contributing

Participants

Percentage of 

In 2006, contributpeople to employmited to $44,000. Th$16,370, and 12 ptributed the statutoAverage contributiogenerally increased Among contributohowever, average cosame as they were fof 45 and 59. Avermuch more by marwas the case for othfrom a low of $6,8two-earner couples sole earners in one-Average real (inflatito employment-baspeople increased by between 2003 and on contributions wreal terms over the workers constrainefrom 10 percent to 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 10.

Contributions to Traditional IRAs, 2003 and 2006

Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: IRA = individual retirement account; n.a. = not applicable.a. Average change, adjusted for inflation.b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from IRAs.

CategoryUnder 30 0.4 1,690 38 0.4 1,770 28 230 to 44 1.4 2,080 55 1.4 2,360 52 445 to 59 2.5 2,530 58 2.6 3,070 55 760 to 70 0.8 2,796 57 0.8 3,570 57 871 or Older n.a. n.a. n.a. n.a. n.a. n.a. n.a.

___

___

All Ages 5.2 2,370 55 5.2 2,840 52 6

Under $20,000 0.3 1,810 26 0.4 1,920 21 2$20,000 to $39,999 1.0 1,990 33 0.8 2,180 25 3$40,000 to $79,999 1.8 2,270 45 1.7 2,620 40 5$80,000 to $119,999 0.9 2,360 66 0.9 2,850 59 6$120,000 to $159,999 0.4 2,680 75 0.4 3,320 74 7$160,000 and Above 0.8 3,180 92 1.0 3,920 92 7

___

___

All Income Ranges 5.2 2,370 55 5.2 2,840 52 6

Unmarried Earners 1.7 2,160 49 1.7 2,600 46 6

Married Earners

Sole 1.0 2,630 60 0.9 3,140 58 6

Primary 1.2 2,450 56 1.3 2,860 53 5Secondary 1.3 2,380 57 1.4 2,940 55 7

___

___

All Earners 5.2 2,370 55 5.2 2,840 52 6

Nonearning Spouses 0.9 2,720 66 0.8 3,290 64 7

Average

 the Maximum

 Contributing

Participants

Percentage of 

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

Percentage of 

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

Income Range (2006 dollars)b

Marital and Earner Status

Annual

2003 2006

Age Group (Years)

2003–2006a

Contribution,

Average

Change in

Percentage

Average

 the Maximum

 Contributing

Participants

In 2006, contributwere limited to $4,age of 50 and $5,0or older. For someobased plan (or whoa plan), the deductincome. This exhibnondeductible conThe average contriin 2006 was $2,840pants contributed tAlthough average rcontributions incre6 percent per year fmaximum allowablmore, so the percenmum dropped from Because so many IRstrained by the limvariation in average than was the case foaverage in 2006 for ($1,920) was not qtributed by the gromore. In contrast, a 401(k)-type plan exceeded the averagest by a factor of mAverage contributioing to marital and for other characterito 401(k)-type plantributed the least—in 2006. Contributone-earner couples nonearning spouse$3,290, on average
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 11.

Contributions to Roth IRAs, 2003 and 2006

Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: IRA = individual retirement account; n.a. = not applicable.a. Average change, adjusted for inflation.b. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from IRAs.

CategoryUnder 30 1.1 1,840 36 1.2 2,130 32 530 to 44 1.9 2,130 44 2.0 2,230 33 245 to 59 1.8 2,590 48 2.0 3,070 44 660 to 70 0.3 2,850 61 0.3 3,520 60 771 or Older 0.1 2,300 28 0.1 2,690 54 5

___

___

All Ages 5.2 2,270 44 5.5 2,590 39 4

Under $20,000 0.5 1,750 40 0.6 1,870 32 2$20,000 to $39,999 0.7 1,840 31 0.8 2,160 31 5$40,000 to $79,999 1.6 2,180 39 1.8 2,550 35 5$80,000 to $119,999 1.4 2,500 49 1.5 2,820 40 4$120,000 to $159,999 0.7 2,720 56 0.8 3,320 52 7$160,000 and Above 0.3 2,580 65 n.a. n.a. n.a. n.a.

___

___

All Income Ranges 5.2 2,270 44 5.5 2,590 39 4

Unmarried Earners 1.9 2,120 44 2.2 2,480 40 5Married Earners

Sole 0.7 2,550 55 0.7 2,860 47 4

Primary 1.4 2,280 40 1.4 2,600 34 4

Secondary 1.2 2,330 45 1.3 2,630 36 4

___

___

All Earners 5.2 2,270 44 5.5 2,590 39 4

Nonearning Spouses 0.5 2,530 52 0.5 2,920 51 5

Average

 the Maximum

 Contributing

Participants

Percentage of 

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

Percentage of 

(Millions)

Participants 

Number of

dollars)

(2006

Contribution

Income Range (2006 dollars)b

Marital and Earner Status

Annual

2003 2006

Age Group (Years)

2003–2006a

Contribution,

Average

Change in

Percentage

Average

 the Maximum

 Contributing

Participants

Like contributions 2006, Roth IRA coto $4,000 for peop$5,000 for people wThe maximum was unmarried taxpayethan $95,000 or fojoint returns whose $150,000. No contunmarried taxpayer$110,000; the incotaxpayers filing joinThe average contri2006 was $2,590, apants contributed tAverage real contrib4 percent per year ftraditional IRAs, avmore slowly than thallowable contributconstrained by the 44 percent to 39 peAverage contributiofrom $1,870 in the $3,320 in the $120The average contritional IRAs were siincome ranges. Hotion constraints for range (in which the traditional IRAs watribution for Roth for traditional IRAUnmarried people Roth IRAs than maabout $2,480, on aearner couples cont$2,860; their nonethe most, averaging 
PARTICIPATION RATES AND CONTRIBUTIONS USE OF TAX INCENT

CBO

Exhibit 12.

Average Contributions to Roth and Traditional IRAs, by 

Age Group, 2006(Dollars)Source: Congressional Budget Office tabulations of a sample of 2006 individual income tax returns and tax 

information returns.

Note: IRA = individual retirement account.a. Contributions to traditional IRAs are not permitted in this age group.

All Ages

71 or Older 

60 to 7045 to 5930 to 44

Under 30

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Roth IRA Traditional IRA

a

Average contributiodiffered slightly for in 2006. In both cafor contributors up participants in the ucontributions, on atheir counterparts i($1,770). In contraRoth IRA participaand 70 tended to bthan the contributiticipants in the samor older are not perditional IRAs, and smaller for Roth IRgroup than were co70 group. 
CBO

Effects of EGTRRA’s Increases in Contribution Lim
EFFECTS OF EGTRRA’S INCREASES IN CONTRIBUTION LIMITS USE OF TAX INCENT

CBO

Exhibit 13.

Participants Making the Maximum Contribution, 2000 to 2006

(Percent)Source: Congressional Budget Office tabulations of a sample of 2000, 2003, and 2006 individual income tax 

returns and tax information returns.

Note: IRA = individual retirement account.

200620032000

Roth IRA

200620032000

Traditional IRA

200620032000

401(k)-Type Plan

0 10 20 30 40 50 60 70 80

39

44

62

52

55

70

55

6

EGTRRA increased both types of IRAs but left the limits flower than for 401IRA limits were so 401(k)-type limits changes under EGTIRA contributors mtribution has alwaypercentage of 401(kthe same. Although traditional and Rotsince Roth IRAs weIRA participants thpants have made thIncreases in the IRA fied in EGTRRA wperiod between 200enacted) and 2006. increases, the percetributing the maximdeclined between 2between 2003 and in the maximum coplans were smaller levels than for IRAparticipants contrib401(k)-type plans d2003 by only 1 perleveled off between 
EFFECTS OF EGTRRA’S INCREASES IN CONTRIBUTION LIMITS USE OF TAX INCENT

CBO

Exhibit 14.

Average Real Contributions to Retirement Plans, 1997 to 2006

(2006 dollars)Source: Congressional Budget Office tabulations of a sample of 1997, 2000, 2003, and 2006 individual income 

tax returns and tax information returns.

Note: IRA = individual retirement account; n.a. = not applicable.

2006200320001997

To a Roth IRA

2006200320001997

To a Traditional IRA

2006200320001997

By the Self-Employed

2006200320001997

To a 401(k)-Type Plan

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

n.a

Aside from one typaverage real (inflatito all types of tax-fincreased over ever1997 to 2006. The tional IRAs betweecontribution limit statute nor indexed participants made tin 1997 and 2000 (figures), the real vadeclined. The increase in limEGTRRA seems to on contributions to by self-employed pbutions increased bbetween 2000 and unexpected because employed contribuby contribution limwas enacted in 200
EFFECTS OF EGTRRA’S INCREASES IN CONTRIBUTION LIMITS USE OF TAX INCENT

CBO

Exhibit 15.

The Effect of EGTRRA on Maximum Contributions to 

401(k)-Type Plans, 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001.a. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

CategoryUnder 30 2 1 -1 -5130 to 44 10 5 -4 -4645 to 59 16 6 -10 -6560 or Older 21 6 -15 -70

All Ages 12 5 -7 -59

Under $20,000 1 <1 -1 -65

$20,000 to $39,999 1 <1 -1 -90

$40,000 to $79,999 3 1 -2 -80$80,000 to $119,999 9 2 -7 -74$120,000 to $159,999 21 7 -13 -65

$160,000 and Above 51 27 -24 -48

All Income Ranges 12 5 -7 -59

Unmarried Earners 7 3 -4 -58Married Earners

Sole 20 9 -11 -54

Primary 15 6 -9 -58Secondary 11 4 -7 -67

All Earners 12 5 -7 -59

Change Due to EGTRRA

Percentage of Participants

EGTRRA Law

Under Pre-

(EGTRRA)

Current Law

Under

All Participants EGTRRA Law

Under PreConstrained by Contribution Caps Constrained 

Percentage of

Participants

Percentage of

Age Group (Years)

Income Range (2006 dollars)a

Marital and Earner Status

Five percent of parplans in 2006 contestablished by EGTcontributed amounthe pre-EGTRRA lwould have made tcontributions in thTherefore, EGTRRof participants who contribution limits 7 percentage pointsbeen constrained b59 percent had thaEGTRRA.Under pre-EGTRRparticipants constralimits would have rpants, but EGTRRlimits for participanin the percentage in were constrained by same as it was for p30 and 44. The effect of raisindiffered for people different ranges. Thpants constrained bmost for people in 
EFFECTS OF EGTRRA’S INCREASES IN CONTRIBUTION LIMITS USE OF TAX INCENT

CBO

Exhibit 16.

The Effect of EGTRRA on Maximum Contributions to 

Traditional IRAs, 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; IRA = individual retirement 

account.

a. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from IRAs.

CategoryUnder 30 47 28 -19 -41

30 to 44 68 52 -16 -24

45 to 59 76 55 -22 -29

60 or Older 84 57 -27 -32

All Ages 73 52 -21 -29

Under $20,000 46 21 -26 -55

$20,000 to $39,999 51 25 -26 -51

$40,000 to $79,999 68 40 -28 -41

$80,000 to $119,999 79 59 -20 -26

$120,000 to $159,999 89 74 -16 -18

$160,000 and Above 98 92 -6 -6

All Income Ranges 73 52 -21 -29

Unmarried Earners 68 46 -22 -33

Married Earners

Sole 78 58 -20 -26

Primary 73 53 -20 -28

Secondary 75 55 -20 -27

All Earners 73 52 -21 -29

Nonearning Spouses 81 64 -17 -21

Age Group (Years)

Income Range (2006 dollars)a

Marital and Earner Status

Percentage of Participants

EGTRRA Law

Under Pre-

(EGTRRA)

Current Law

Under

All Participants EGTRRA Law

Under PreConstrained 

Constrained by Contribution Caps

Percentage of

Participants

Percentage of

Change Due to EGTRRA

Fifty-two percent oIRAs in 2006 contrestablished by EGTcent contributed amthan the pre-EGTRwould have made tcontributions in thTherefore, EGTRRof participants who contribution limits 21 percentage poinhave been constrainlimits, 29 percent hEGTRRA.Under pre-EGTRRwould have been evcontributor and thbeing constrained bBy raising the limitor older, EGTRRA significantly. The p60 or older (57 perwas only 5 percentproportion of the 3cent) that was affecThe effect of the hiunder EGTRRA on pants making the mtraditional IRAs wapeople. About half two lowest income constrained by the about one-quarter EGTRRA. Almost group whose incomwould have been coEGTRRA limit, buabove 90 percent ev
EFFECTS OF EGTRRA’S INCREASES IN CONTRIBUTION LIMITS USE OF TAX INCENT

CBO

Exhibit 17.

The Effect of EGTRRA on Maximum Contributions to 

Roth IRAs, 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; IRA = individual retirement 

account; n.a. = not applicable.

a. The income ranges refer to adjusted gross income plus excluded contributions to retirement plans minus 

taxable distributions from individual retirement accounts.

CategoryUnder 30 55 32 -22 -41

30 to 44 54 33 -21 -38

45 to 59 70 44 -26 -37

60 or Older 82 59 -23 -28

All Ages 62 39 -23 -37

Under $20,000 52 32 -20 -39

$20,000 to $39,999 51 31 -20 -40

$40,000 to $79,999 58 35 -22 -39

$80,000 to $119,999 65 40 -25 -38

$120,000 to $159,999 78 52 -27 -34

$160,000 and Above n.a. n.a. n.a. n.a.

All Income Ranges 62 39 -23 -37

Unmarried Earners 62 40 -21 -35

Married Earners

Sole 69 47 -22 -32

Primary 59 34 -25 -42

Secondary 61 36 -24 -40

All Earners 62 39 -23 -37

Nonearning Spouses 71 51 -21 -29

Age Group (Years)

Income Range (2006 dollars)a

Marital and Earner Status

Percentage of Participants

EGTRRA Law

Under Pre-

(EGTRRA)

Current Law

Under

All Participants EGTRRA Law

Under PreConstrained 

Constrained by Contribution Caps

Percentage of

Participants

Percentage of

Change Due to EGTRRA

Thirty-nine percenIRAs in 2006 contrestablished by EGTcontributed amounthe pre-EGTRRA lwould have made tcontributions in thTherefore, EGTRRof participants who contribution limits centage points. Of been constrained b37 percent had thaEGTRRA.The correlation betpercentage of partipre-EGTRRA law IRAs as for traditioconstrained percenage groups would hunder pre-EGTRRtion would have inage 44. Under EGTlimits, the proportistrained by the limgroup, but the propremained higher fofor younger peopleEGTRRA reduced pants constrained bby 20 percentage p

range and by 27 pe

$120,000-to-$159centage reduction iby the limits was foless than $120,000
CBO

Use of the Saver’s Credit
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 18.

Eligibility for the Saver’s Credit, 2003 and 2006

Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Eligible for50 Percent

Credit

 (12%)

Eligible for

20 Percent Credit

 (2%)

Eligible for

10 Percent Credit

 (17%)

Ineligible:

Above Income

Threshold

 (49%)

Ineligible:

No Tax Liability

Before Credit

 (18%)

Ineligible:

Minor or

Dependent

 (3%)

Eligible for50 Percent

Credit

 (8%)

Eligible for

20 Percent Credit

 (2%)

Eligible for

10 Percent Credit

 (15%)

Ineligible:

Above Income

Threshold

 (54%)

Ineligible:

No Tax Liability

Before Credit

 (18%)

Ineligible:

Minor or

Dependent

 (3%)

2003 2006

Since 2001, low-intribute to a retiremto claim a “saver’s cincome tax. The crcannot exceed the tity), and the credit rises. In 2006, 25 perceneligible for the save5 percentage pointof all workers could of 50 percent (dowworkers in 2003), 2 20 percent credit (uand 15 percent coucredit (down from The remaining worsaver’s credit for a v54 percent of workthreshold for eligibfiler; $37,500 for a $50,000 for marrie18 percent of workbut had no tax liabiwere ineligible becaor were listed as a dreturn. (Full-time sbut because studenthe Internal Revenucalculation of eligibthose age 18 or olddependents on ano
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 19.

Claiming of the Saver’s Credit by Eligible Workers, 2003 and 2006

Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

CategoryUnder 30 13.8 13 7 13.3 14 8

30 to 44 14.4 24 16 11.7 23 1645 to 59 10.3 29 17 9.3 28 19

60 or Older 4.5 21 10 3.6 20 10

_____ _____

All Ages 42.9 21 12 37.8 20 13

50 Percent Credit 16.2 15 8 12.5 14 9

20 Percent Credit 3.4 20 11 3.2 20 13

10 Percent Credit 23.2 28 17 22.1 26 18

_____ _____

All Rates of Credit 42.9 21 12 37.8 20 13

Unmarried Earners 24.2 17 9 22.9 17 10

Married Earners

Sole 7.4 28 17 5.9 27 18

Primary 5.7 32 22 4.5 32 24

Secondary 5.7 18 12 4.5 16 12

_____ _____

All Earners 42.9 21 12 37.8 20 13

Nonearning Spouses 7.4 5 3 5.9 4 3

Age Group (Years)

Income-Based Rate of Credit

Marital and Earner Status

Eligible for

Credit

Making

(Millions) Contributions Credit (Millions) Contributions Credit

Making

Qualified

Eligible

Number Eligible

Percentage of

Claiming

2006

Qualified

Eligible

Percentage of

Claiming

Eligible for

Credit

Percentage of

Number Eligible Percentage of

2003

Just 20 percent of tfor the saver’s credicontributions to IRcontrast, 51 percenwas above the thresmade contributionqualified for the crenot shown here). The percentage of qualifying contribuwith age up to the from 14 percent in 28 percent in the 4centage making qulower in the higheramong people with 14 percent of those credit made qualifyresponding percentthe 20 percent and 20 percent and 26 The variation in thworkers making qugreatest among grostatus. In 2006, 32 in two-earner marrcontributions, in counmarried taxpayerary earners in two-Nonworking spous401(k)-type plans; qualifying contribu
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 20.

Eligible Contributors Claiming the Saver’s Credit, 2006

(Percent)Source: Congressional Budget Office tabulations of a sample of 2006 individual income tax returns and tax 

information returns.

All Earners

Nonearning Spouses

Secondary Earners

Primary Earners

Sole Earners

Married

Unmarried

Marital and Earner Status

10 Percent20 Percent50 Percent

Income-Based Rate of Credit

60 or Older

45 to 5930 to 44

Under 30

Age (Years)

0 10 20 30 40 50 60 70 80

6565

7575

65

60

70

65

61

52

69

70

59

A taxpayer must tabenefit from the saqualifying contributhen, claim the crecent of the tax filercredit and made thactually claimed thhigher than the 59 2003, probably becter known over timeligible working taxof the 20 percent wbutions) actually cl(see Exhibit 19).Among eligible conwere less likely than the credit: In 2006age 60 or older claipercentage, 70 percbetween the ages ocredit brackets, the tributors was largeswho claimed the 10 (61 percent) for tho50 percent credit. Differences were segroups by marital afive percent of the two-earner couples only 60 percent of utors did so. 
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 21.

Average Saver’s Credits and Associated Contributions, 

2003 and 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

CategoryUnder 30 1.2 1,050 150 1.5 950 120

30 to 44 2.4 1,490 167 1.9 1,400 147

45 to 59 1.8 2,310 223 1.8 2,080 183

60 or Older 0.4 2,810 272 0.4 2,870 214

___ ___

All Ages 5.8 1,750 188 5.6 1,590 156

50 Percent Credit 1.4 1,350 348 1.1 1,340 292

20 Percent Credit 0.4 1,370 214 0.4 1,520 204

10 Percent Credit 4.0 1,920 132 4.1 1,670 115

___ ___

All Rates of Credit 5.8 1,750 188 5.6 1,590 156

Unmarried Earners 2.6 1,350 175 2.9 1,190 138

Married Earners

Sole 1.2 2,450 254 1.1 2,320 224

Primary 1.2 2,070 185 1.1 1,950 155Secondary 0.7 1,420 131 0.6 1,640 119

___ ___

All Earners 5.8 1,750 188 5.6 1,590 156

Nonearning Spouses 0.2 2,170 215 0.2 2,300 168

Age Group (Years)

Income-Based Rate of Credit

Marital and Earner Status

Claiming

Credit

Average

(Millions) (2006 dollars) (2006 dollars) (Millions) (2006 dollars) (2006 dollars)

Average

Contribution

Average

Number

Credit

2006

Contribution

Average

Credit

Claiming

Credit

Number

2003

The average contrian IRA or a 401(k)payers who were elcredit fell from $1,2006. But that declgroups of workers. those age 60 or oldcredit bracket, and greater representatiearners in two-earnspouses in one-earnmore (in 2006 dollOtherwise, patternby workers eligible ally mirror those of IRAs and 401(k)-tyOverall, the averag2006 dollars) fell frin 2006. That declto bracket creep: Bwere not indexed foover time, more peobrackets in 2006 th
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 22.

Other Features of Contributions for Which the Saver’s Credit 

May Be Claimed, 2003 and 2006Source: Congressional Budget Office tabulations of a sample of 2003 and 2006 individual income tax returns and 

tax information returns.

Note: IRA = individual retirement account.

CategoryUnder 30 1.2 13 25 1.5 13 25

30 to 44 2.4 22 20 1.9 21 2045 to 59 1.8 37 31 1.8 35 3060 or Older 0.4 48 38 0.4 47 41

___

___

All Ages 5.8 27 27 5.6 25 28

50 Percent Credit 1.4 20 39 1.1 20 39

20 Percent Credit 0.4 18 26 0.4 21 34

10 Percent Credit 4.0 30 25 4.1 27 24

___

___

All Rates of Credit 5.8 27 27 5.6 25 28

Unmarried Earners 2.6 19 27 2.9 16 26

Married Earners

Sole 1.2 40 22 1.1 43 19

Primary 1.2 32 23 1.1 31 27

Secondary 0.7 24 57 0.6 27 58

___

___

All Earners 5.8 27 27 5.6 25 28

Nonearning Spouses 0.2 50 100 0.2 52 100

2006

Percentage

Contribution an IRA

Directed to

Claiming

Credit

Number Making Percentage of

2003

Making

Percentage

Number Percentage of

Maximum

Age Group (Years)

Income-Based Rate of Credit

Marital and Earner Status

Claiming

Credit Creditable

(Millions) (Millions) Contribution an IRA

Maximum

Creditable

Contributions Contributions

Directed to

In some groups

—t

and both spouses in ples—average contplans by workers elexceeded the $2,00able saving. Becausno additional benethat limit, the percmade contributionindicator of how mby the credit. By thone in four contribcredit in each year tributed just as mucredit.Regarding the sorts which contributionclaimed the saver’s went into IRAs (27 28 percent in 2006employment-based plans. For people aage of contributionincreased with age, to-44 group to 41 polder in 2006. People who were elcredit directed the contributions to IR2003 and 2006. Nof their contributioemployment-based them, and secondathan half of their chaps because they wa retirement plan b
USE OF THE SAVER’S CREDIT USE OF TAX INCENT

CBO

Exhibit 23.

Effective Rate of the Saver’s Credit, 2006

(Percent)Source: Congressional Budget Office tabulations of a sample of 2006 individual income tax returns and tax 

information returns.

All Earners

Nonearning Spouses

Secondary Earners

Primary Earners

Sole Earners

Married

Unmarried

Marital and Earner Status

10 Percent

20 Percent

50 Percent

Income-Based

Statutory Rate of Credit

60 or Older

45 to 59

30 to 44

Under 30

Age (Years)

0 5 10 15 20 25

10

77

8

10

12

7

13

22

7

9

11

13

The effective rate oamount of actual tatotal contributions payers—was less thwould suggest. In 2people who were elwas $292, and the $1,340, resulting in 22 percent. The effstatutory rate of 50 First, contributions in total contributioand second, credits not allowed. The efor the 20 percent aets were 13 percent In 2003 (not showcredit rates were hiand 20 percent cred16 percent, respect10 percent bracketEffective rates of crand marital and earlargely on how memdistributed among Thus, the effective younger age groups tributors. In both gthe 50 percent credearner couples generate than did the wearner couple. 
CBO

Appendix:

Data and Methods

This analysis was based on participation and contribution data for employment-based retirement plans and individual retirement accounts (IRAs). Individual income tax returns and associated tax information returns filed with the Internal Revenue Service (IRS) identify wage earners and self-employed people who are covered by an employment-based retirement plan as well as taxpayers who contribute to an IRA or 401(k)-type plan and the amounts they contribute. Employer contributions to retirement plans are not considered here because employers report those amounts to the IRS only in the aggregate, and the amounts cannot be linked to individual taxpayers.Participation rates in employment-based plans and IRAs—and average contributions to each—were tabulated from a sample of tax returns for 2006 prepared by the IRS and enhanced by attaching data from Forms W-2 (filed by employers) and 5498 (filed by financial institutions).1 Those information returns do not undergo the same degree of 

consistency checking at the IRS that the tax returns themselves do. Therefore, to impose consistency with the amounts reported on Forms 1040, the Congressional Budget Office (CBO) developed separate procedures for the two files.2

The subgroups of wage-earning participants in employment-based plans were defined on the basis of whether “retirement plan” was checked in 

Box 13 of Form W-2 and whether there was a deferred-compensation amount shown in Box 12 of that form. Wage-earning participants in employment-based plans were separated into two discrete subgroups: those who contributed to a 401(k)-type plan (and, possibly, also participated in noncontributory plans) and those who participated in a noncontributory plan only. Participants in 401(k)-type plans were those with positive 

deferred-compensationoncontributory plandeferred compensatioment plan” box had bSelf-employed participlans were defined as amount on the line of employed SEP [simplSIMPLE [Savings IncEmployees], and qualcould be identified.IRA participants also subgroups (in this casthose contributing to contributing to a Rotidentified on the basis Box 7 of Form 5498. separate Form 5498, tsubgroups, although opants did so in 2006.Except in Exhibit 4, pexpressed as a percentin the database; that iand salaries or attache(the form filled out by were 150 million such those who were claimtaxpayer’s return). CB

1. Because the tabulations are from a sample, some sampling 

error is inevitable. The IRS publishes coefficients of variation (CVs) for most of the fields that can be extracted from Forms 1040. For IRA and self-employed contributions in 2006, the CV for those fields (both the number of returns and the amounts) was between 1.5 and 1.8 percent (see Internal Revenue Service, Statistics of Income 2006: Individual Income Tax Returns [July 2008], pp. 66–67). A CV of 1.8 percent implies that the value in the full population will fall within a range that is within 3.6 percent (higher or lower) of the tabulated average in 19 samples out of 20. For a tabulated dollar amount of $1,000, that would correspond to a range of $964 to $1,036. Corresponding CVs in 1997 were slightly higher but still less than 3 percent (see Internal Revenue Service, Statistics of Income 1997: Individual Income Tax Returns [December 1999], pp. 58–59). CVs for contributions to 401(k)-type plans are not published but probably would be lower than for contributions to IRAs or retirement plans for the selfemployed.

2. The procedures are described in Congressional Budget 

Office, Utilization of Tax Incentives for Retirement Saving(August 2003), Appendix A, pp. 15–19.
CBO

APPENDIX USE OF TAX INCENT

comparisons between tax returns and survey data, that about 3 million people with wage or self-employment income (usually in small amounts) did not file tax returns; those people are therefore not represented in the data here. If they were included and if they did not contribute to any retirement plan, the overall average participation rate would be about 1 percentage point below the rate reported in this study.Accurately identifying participants making the maximum contribution to 401(k)-type plans was complicated by the rules governing 403(b) and 457 plans. In most cases, statutory contribution limits on 403(b) and 457 plans matched those for 401(k) plans, although higher limits applied for 

some participants who were nearing retirement. Those to whom the higher limits applied could not be identified in the data and were counted as contributing the maximum amount if they exceeded the 401(k) limit. Furthermore, those participating in both a 457 plan and either a 401(k) plan or a 403(b) plan could contribute up to the maximum amount to each plan independently. That feature of the law could not be simulated with the available data. Thus, the percentages constrained by the maximum amount presented in this study are somewhat overstated.In analyzing the saver’s credit, CBO maintained the convention of treating the individual worker, rather than the tax return, as the unit of analysis, 

even though credits athe income of the taxindividual.3 Credits w

on a joint return in prcontributions, up to $which a credit was clacontributions could bdistributed in proport

3. To date, the only othe

based on IRS data is thHarvey, “Utilization othe First Year,” Nation(December 2005), pp. the tax return as the ucomparisons with this