Department of Finance
Date of this Version
1994
Document Type
Article
Citation
Journal of Actuarial Practice 2 (1994), pp. 159-166
Abstract
There exist significant tax incentives for retirement savings plans in Canada and the United States. Qualified employer and employee contributions, within limits, are tax deductible to the employer and nontaxable to the employee. Also, investment income is not taxed until taken. On the other hand, monies received from funds having such tax incentives are taxable in full as income to the recipient when taken. This paper analyzes the two tax advantages of qualified retirement savings plans: the tax deductibility of contributions and the nontaxation of investment income until it has been distributed. The algebraic analysis shows that the deductibility of contributions represents a deferral of tax, but that it does not create any permanent loss of revenue to the government. On the other hand, the algebra indicates that there is a permanent tax subsidy associated with the deferred taxation of investment income.
Included in
Accounting Commons, Business Administration, Management, and Operations Commons, Corporate Finance Commons, Finance and Financial Management Commons, Insurance Commons, Management Sciences and Quantitative Methods Commons
Comments
Copyright 1994 Absalom Press