Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block

Emmanuel Saez, Esther Duflo, Jeffrey Liebman, Peter R. Orszag, and William G. Gale

This paper analyzes the effects of a large randomized field experiment, carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 15,000 H&R Block clients, in 60 offices in predominantly low- and middle-income neighborhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two broad findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 10 percent in the 20 percent match group, and 17 percent in the 50 percent match group. Average IRA contributions (excluding the match) for the 20 percent and 50 percent match groups were 4 and 8 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full-information, rational-saver model, and suggest instead that professional tax assistance, information provision, and ease of saving can play important roles in encouraging IRA contributions among low- and middle-income families. For example, we find more modest effects on take-up and amounts contributed from the existing Saver’s Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver’s Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in retirement saving participation and contributions, even among middle- and low-income households.