Abstract Over-funding of qualified pension plans may cause the marginal tax rates applied to the distributions from such plans to exceed the rates applied to the earnings from which the pension contributions were made, This is due to the graduated tax structure, the 15 percent excess distribution tax, and the possible exposure of social security benefits to taxation. When this occurs, continued use of qualified retirement savings can be suboptimal. We report results for 162 different tax scenarios by varying interest rates, number of years to retirement, the amount saved, marginal tax rates during employment, and the initial balance in the pension plan. We find that planning opportunities do exist (in over one-third of our scenarios) and that the planning problem, rather than being isolated to a narrow set of predictable fact patterns, is pervasive.
Greenstein et al. (Mon,) studied this question.