Under a Payroll Deduction IRA, employees establish a Traditional or Roth IRA with a financial institution and authorize a payroll deduction amount for it. A business of any size, even self-employed, can establish a Payroll Deduction IRA program.
The benefits of saving now can help you get ready for a retirement that can last 30 years or more.
For additional information on participating in a Payroll Deduction IRA, see Payroll Deduction IRAs for Small Businesses PDF .
The Payroll Deduction IRA is probably the simplest retirement arrangement that a business can have. No plan document needs to be adopted under this arrangement.
Under a Payroll Deduction IRA, an employee establishes an IRA (either a Traditional or a Roth IRA) with a financial institution. The employee then authorizes a payroll deduction for the IRA.
The employer's responsibility is simply to transmit the employee's authorized deduction to the financial institution. In general, if this arrangement is offered to any employee then it should be offered to all employees.
The Payroll Deduction IRA is essentially a "no fuss, no muss" situation.
Pasco Company offered its employees the opportunity to have deductions taken from their paychecks to contribute to IRAs that the employees set up for themselves. Rebecca, a Pasco employee, signs up for the program and has $100 of her $1,000 bi-weekly paycheck deposited into her IRA for a yearly total of $2,600. At year-end Pasco reports the full $26,000 she earned on her Form W-2, and she would add the $2,600 to any other IRA contributions she made during the year in calculating her maximum contribution and Form 1040 IRA deduction.
Who Contributes: Employees make all contributions and control where their money is invested.
Contribution Limits: Payroll Deduction IRAs have the same limits as other IRAs.
Filing Requirements: Employer has no filing requirements.
Participant Loans: IRA rules don’t permit loans or assets to be used as collateral.
Withdrawals: Employee may withdraw contributions at any time, subject to income tax and 10% additional tax if under age 59½.
Under a Payroll Deduction IRA, an employee establishes an IRA (either a Traditional IRA or a Roth IRA) with a financial institution. The employee then authorizes a payroll deduction for the IRA.
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.
Any employee who performs services for your company is eligible to be included in a Payroll Deduction IRA. If you offer it to one employee, then you should offer it to everyone.
Each employee is always 100% vested in (or has total ownership of) the contributions to their Payroll Deduction IRA.
To terminate a Payroll Deduction IRA, notify your payroll organization that you will no longer be making this service available to your employees and that you want to terminate the contract or agreement with it. You should also notify your employees that the Payroll Deduction IRA has been discontinued.
You do not need to give notice to the IRS that you terminated your Payroll Deduction IRA. See Publication 3998 PDF or consult with your financial institution to determine if another type of retirement plan might better suit your needs.
Forms, publications, frequently asked questions, etc.