Payroll Deduction IRAs: Retirement Options for All Employers

One of the simplest retirement plan options – Payroll Deduction IRAs – give employers the ability to offer their employees an easy to understand, cost effective way to save for retirement without taking on administrative responsibilities or having to make financial contributions.

Payroll Deduction IRAs are arrangements that allow employees to make contributions to an IRA by having money deducted from their paychecks. Employees are responsible for opening the IRA account – either a Traditional or a Roth IRA – with a financial institution. The employee then authorizes their employer to make a payroll deduction into the IRA.

The employer’s responsibility is simple and straightforward – transmit the employee’s authorized deduction to the financial institution where it will be deposited into their IRA account. The employer is not required to make any administrative filings and only employees make contributions to the IRA account. If this arrangement is offered to any employee then it should be offered to all employees.

Highlights: Payroll Deduction IRA

  • Who Contributes: Employees only. They also 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: Not permitted. The assets may not be used as collateral
  • In-Service Withdrawals: Yes, but subject to income tax and 10% additional tax if under age 59 ½.

Take Action!

Compare the different retirement plans options available to small business owners interested in offering this benefit to employees

Learn more about Payroll Deduction IRAs by clicking here to get more information on the IRS website.

If you’re self-employed, consider a SEP-IRA for your retirement savings, rather than a Traditional or Roth IRA. You’ll benefit from higher contribution limits.  For more information about SEP-IRAs click here.

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