Once the initial paperwork is done, there are no annual filing requirements for a Payroll Deduction IRA. The lack of filing requirements cuts down on the administrative costs of having a Payroll Deduction IRA.

Generally, any employee who performs services for your company is eligible to be included in a Payroll Deduction IRA. If you offer the payroll deduction service to one employee, then you should offer it to all employees.

By establishing a Payroll Deduction IRA, you, the employer, have chosen a plan that makes each employee responsible for funding his or her IRA. Contributions to each employee’s account are limited, as previously discussed in Choosing a Payroll Deduction IRA. After the Payroll Deduction IRA contributions are sent to each financial institution, you have no further responsibility for the amounts contributed.

While the financial institutions selected will manage the funds, each employee has the freedom to move their IRA assets from one IRA to another. Depending on the financial institution, Payroll Deduction IRA contributions can be invested in stocks, mutual funds, money market funds, savings accounts and other similar types of investments. Each employee is always 100% vested in (or has total ownership of) the contributions to their Payroll Deduction IRA.

The contributions limits are: $5,000 for 2009 and 2010. Additionally, "catch-up" contributions are permitted for any employee who is age 50 or over. This special catch-up amount is $1,000 for 2006 and beyond.

How Does a Payroll Deduction IRA Work?
Rebecca 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 the 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 $5,000 limit in 2009).