What is a Payroll Deduction IRA?
A Payroll Deduction IRA is an arrangement that allows employees to contribute to an Individual Retirement Account through their employer. Any employer can choose to set up a Payroll Deduction IRA.
How does a Payroll Deduction IRA work?
If an employer sets up a Payroll Deduction IRA, it is up to employees to authorize their employer to withhold money from their paychecks to be deposited into their IRA accounts.
The employees must establish an IRA (a Traditional IRA, a Roth IRA, or a Nondeductible IRA) with a financial institution. The employer will then transmit the employee’s authorized deduction to the financial institution. A plan document is not needed under this arrangement.
How much can be contributed to a Payroll Deduction IRA?
Payroll deduction IRAs follow the same contribution limits and the same rules as the other IRAs. The chief difference is that, if yours is a Traditional IRA, you will not pay income taxes on the amounts contributed to the IRA.
The IRS website has additional information about Payroll Deduction IRAs.< Back