How to Set Up an Employee Retirement Plan at Almost No Cost to You

As a good employer, you probably want to ensure that your employees can put away money for retirement, especially with the uncertainty surrounding Social Security. But if you are barely making ends meet for yourself, how can you help your employees? There is a retirement plan that you can make available to your employees that will cost you virtually nothing. The employees fund it entirely on their own. The benefit to them is that their contributions come directly out of their paycheck, making saving easier and more likely.

The Payroll Deduction IRA is the simplest retirement plan available. Any size business can have one. There are no documents for you to fill out in order to begin, and no annual reporting. Only the employees can contribute to their accounts, so other than a possible very small administrative fee, there is no cost to you. To meet the legal requirements, if you offer a Payroll Deduction IRA to your staff, it must be offered to all of your employees, full or part-time, new employees or those that have been around for years.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Payroll Deduction forms

1. Employees who want to participate must establish their own traditional or Roth IRAs. Only the employee can decide where his or her money is to be invested. The IRA can be at the employee’s bank or insurance company or if they have one, stockbroker.

2. The employee must authorize you, the employer, to withhold a specified amount of money from his or her paycheck to fund the retirement plan. If your payroll is outsourced, have employees check with your payroll administrator to authorize the deduction. Remind the employee that IRA contributions are subject to annual limits. The limits have risen considerably in the last few years. Again, your payroll administrator may have this information, or check with the IRS.

3. Have your payroll administrator forward the money to the appropriate banks as it is withheld from paychecks.

4. You have no filing requirements and your business receives no tax deduction for the plan. Since employee control their own accounts, they are able to see that the amounts withheld from their paychecks are deposited as promised.

5. Relax. There is nothing more required of you.

Tips & Warnings

• A Payroll Deduction IRA plan is great for small employers who can't afford to contribute to their employees' retirement plans. But, if your business grows and you decide at some point to upgrade to a retirement plan where you wish to contribute, you must discontinue the Payroll Deduction IRA.

Resources

• IRS Pub 590
• IRS article
• Treasury Direct