Highlights:

The Payroll Deduction IRA is probably the simplest retirement arrangement that a business can do. In fact, no plan document need be adopted under this arrangement.

• The employer has no filing requirements.
• Only employees make the contributions.
• Any size business can provide this.

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.

The Payroll Deduction IRA is essentially a “no fuss, no muss” situation.

Information List:

Pros and Cons:

• Easy to set up and operate.
• Little administrative cost or requirements.
• As the employer, you receive little credit for this service from your employees.
• No deductions for your business.

Who Contributes:  Only the employees. The employees control where their money is invested.

Contribution Limits:  $5,000 for 2009 and 2010. A special “catch-up” contribution is permitted if the employee is aged 50 or over. This additional contribution is $1,000 per year for 2006 and beyond.

Filing Requirements:  Employer has no filing requirements.

Participant Loans:  Not permitted.  Also, the assets may not be used as collateral.

In-Service Withdrawals:  Yes, but subject to income taxes and 10% penalty if under age 59-1/2.

Additional Resource:  The IRS Retirement Plans Navigator - a retirement plan Web guide for small employers.