The effect of required minimum distributions on intergenerational transfers

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.