Payroll deduction IRA a hands-off plan

Payroll deduction IRA

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Small-business retirement plans

Payroll deduction IRA

With a payroll deduction individual retirement account, the employees establish a traditional IRA or Roth IRA at a financial institution and subsequently authorize a payroll deduction amount for the account. Businesses of any size, including self-employed business owners, can establish a payroll deduction IRA program.

From the business’s perspective, this is the easiest plan to implement. No plan documents are required. Only the employees make contributions to their accounts. Employees choose where to hold the account and how the account is invested. Employee contributions are limited to their traditional IRA or Roth IRA contribution limits, which in 2012 is $5,000 plus another $1,000 for workers age 50 or older. The employer isn’t offering much more than an automatic savings plan vehicle for the employee, but it’s better than nothing.