As an employer,
you may want to consider offering your employees a Payroll Deduction IRA. Under
a Payroll Deduction IRA, your employee establishes an IRA (either a Traditional
IRA or a Roth IRA) with a financial institution. The employee then authorizes
a payroll deduction amount for the IRA.
This is probably
the simplest retirement arrangement that a business can have. It is so easy that,
in fact, no plan document is needed under this arrangement.
To
establish a Payroll Deduction IRA, you:
- Can be a business of any
size, even self-employed.
Advantages:
- Easy
to set up and operate.
- Administrative costs are low.
- Only
your employees make contributions.
Your responsibility
as an employer is simply to transmit the employee’s authorized deduction
to the financial institution. In general, if you offer this arrangement to any
employee, then you should offer it to all employees.
How
does a Payroll Deduction IRA work?
Rebecca, age 45,
works for the Pasco Collection Company, which does not have an employer-sponsored
pension plan. However, Pasco has offered its employees the opportunity to have
deductions taken from their salaries (which are paid using electronic deposit)
to contribute to IRAs that these employees have set up for themselves. Rebecca
signs up for the program and has $100 per bi-weekly paycheck deposited into her
IRA for a yearly total of $2,600 (which is below the $4,000 limit in 2007).
A
Payroll Deduction IRA has a life cycle, with four distinct stages. Click on the
below links to review additional information on each of the life stages of a Payroll
Deduction IRA.
See Resources - IRA-Based
Plans for forms, publications, frequently asked questions, etc.
