Payroll deduction IRA
A payroll deduction IRA is a low-cost way for small employers to help their employees start saving for retirement. An employer can set up an IRA program through a bank, retirement provider or other financial institution with minimal costs to themselves or their business. Once the account is set up, employees can opt-out or authorize a payroll deduction. The employee contributions to the IRA are made after-tax, but the earnings will be tax-free.
With a payroll deduction IRA, employers are simply a middle-man and make no contributions on behalf of their employees. Employers are responsible for setting up the IRA program, deducting the desired amount from employees’ paycheck and passing on that deduction to the financial institution.
| Feature | Summary | Details |
|---|---|---|
| Employer Eligibility | Few Restrictions | No size restrictions |
| Minimum Age Restriction | 18 years old | Cannot impose age restriction as with some other types of plans |
| Maximum Service Restriction | 0 years | If this account is offered to one employee, it must be offered to all. |
| Annual Notifications/Reporting | None | This is not considered an employer retirement plan, and there are no annual filings or reporting. |
| Funding Options | Employee | Funds are deducted straight from the employee’s paycheck. |
| Maximum Contribution (2024) |
$7,000* $8,000* (age 50+) |
Employees can contribute a maximum of $7,000 a year. Those who are 50 years old and up are permitted “catch-up” contributions. |
| Special Features |
Low involvement Low cost |
All the employer is responsible for is deducting the desired amount from the employee’s paycheck. Once the financial institution has the money, the employer is no longer involved. |
| Withdrawal Restrictions | 10% tax on premature withdrawals | Withdrawals made before the participant turns 59 ½ will be subject to income tax and a 10% additional tax |
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