Payroll Deduction IRAs
One of the simplest retirement arrangements that a business can set up for its employees is a payroll deduction IRA. Under this type of plan, an employee sets up either a traditional or Roth IRA with a financial institution. The employee authorizes a payroll deduction for the IRA, and the employer’s only obligation is to transmit the authorized deduction to that institution. Generally, an employer who offers a payroll deduction IRA to any employee should offer it to all employees.
The employer is not required to adopt a plan document under this arrangement. Any size business can provide a payroll deduction IRA for its employees, and the employer has absolutely no filing requirements. It is the employee, not the employer, who makes contributions to the arrangement. By establishing a payroll deduction IRA, the employer has made each employee responsible for funding his or her individual IRA.
It is the financial institution selected by the employee, not by the employer, which manages the funds. Depending on the choice of financial institution, the employee’s contributions may be invested in stocks, mutual funds, money market funds, savings accounts, and similar investments. Each employee retains the freedom to move his or her IRA assets from one IRA to another, and he or she is always fully invested in those assets.
An employer who decides that he no longer wants to participate in a payroll deduction IRA does not have to give the Internal Revenue Service any notice of the termination of the plan. The employer is only required to notify the participating employees.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.