Payroll Deduction IRAs

Payroll deduction IRAs are traditional IRAs set up by an employer on behalf of an employee. A payroll deduction IRA is not considered a pension plan, but instead is a type of individual retirement arrangement. An employer merely collects employee IRA contributions through payroll deductions and transfers withheld funds to the IRA sponsor.

Although used by some employers, a payroll deduction IRA provides very little in the way of additional benefits to an employee. One benefit is that the employer pays the administrative cost for the payroll deduction to the IRA sponsor. Another benefit is that some employees may find it helpful to save more through automatic payroll deduction.

However, all major investment companies now provide a means to essentially do the same thing. If an employer has a payroll system that allows direct deposit, a portion of each paycheck can automatically go to an account set up with the investment company. Another option is to have amounts automatically withdrawn at regular intervals from a person's bank account. Either way, a person retains the benefit of money being invested automatically without any additional administrative cost.