Saving for retirement by the self-employed

When compared with wage earners, the self-employed are reported to have a lower take up rate of tax-favored retirement plans in the United States. Using panel data from federal income tax returns for the years 1999-2006, this paper explores the various factors that shape the observed pattern of contributions to such plans by the self-employed. Consistent with previous findings in the literature, contributions rise with income, tax rates, as well as savings in taxable accounts. More interestingly, the novel findings in this paper address the role that debt plays in shaping contributions. While housing and business-related debts are accorded similar tax treatment, the findings show that contributions decline with business debt whereas they rise with household debt.