Pinching pennies? Here’s a low-budget retirement plan
Have you looked into starting a retirement plan for your small business operation? You’d probably like to help employees salt away some money for the future, but you may have decided most options are too expensive to set up and administer. Or perhaps it’s just too much of a hassle for you right now.
Strategy: Use a payroll deduction IRA. This is the easiest IRS-approved option available to employers. What’s more, you can set up the program and run it at virtually no cost.
The contribution limits for payroll deduction IRAs are the same as traditional IRAs. Thus, an employee can contribute up to $5,000 for the 2009 tax year, plus an extra $1,000 if he or she is age 50 or older. Contributions may be partially or wholly deductible by employees under the regular rules.
Here’s the whole story: Generally, any employee who performs services for your company is eligible to be included in the payroll deduction IRA. If you offer this service to one employee or use it yourself, you must offer it to all of your employees.
Once you complete the initial paperwork and implement the payroll deductions, you’re practically done. There are no plan documents to adopt or annual forms to file as with most qualified retirement plans, thereby saving administrative costs. Your company doesn’t make any contributions either.
Each employee who wants to participate sets up his or her own IRA at a bank or other financial institution. After your company sends the institution the contributions, your responsibilities end.
Employees have the ability to move their assets from one IRA to another. Depending on the financial institution, contributions are typically invested in stocks, mutual funds, money market funds, savings accounts and similar types of investments. Each employee is always 100% vested in the contributions to their IRAs.
There are, of course, a few restrictions that also apply to traditional IRAs. For instance, employees can’t borrow from their accounts or use the assets as collateral for loans. If an employee under age 59½ makes a withdrawal, the distribution is subject to a 10% penalty in addition to regular income tax (unless one of the special tax law exceptions applies).
If you decide to adopt a more comprehensive retirement program for your employees at some point, you can transfer the amounts in the payroll deduction IRAs.
Tip: Employees can choose to use Roth IRAs instead of traditional IRAs. With a Roth, contributions are never tax-deductible, but future distributions may be tax-free.
Strategy: Use a payroll deduction IRA. This is the easiest IRS-approved option available to employers. What’s more, you can set up the program and run it at virtually no cost.
The contribution limits for payroll deduction IRAs are the same as traditional IRAs. Thus, an employee can contribute up to $5,000 for the 2009 tax year, plus an extra $1,000 if he or she is age 50 or older. Contributions may be partially or wholly deductible by employees under the regular rules.
Here’s the whole story: Generally, any employee who performs services for your company is eligible to be included in the payroll deduction IRA. If you offer this service to one employee or use it yourself, you must offer it to all of your employees.
Once you complete the initial paperwork and implement the payroll deductions, you’re practically done. There are no plan documents to adopt or annual forms to file as with most qualified retirement plans, thereby saving administrative costs. Your company doesn’t make any contributions either.
Each employee who wants to participate sets up his or her own IRA at a bank or other financial institution. After your company sends the institution the contributions, your responsibilities end.
Employees have the ability to move their assets from one IRA to another. Depending on the financial institution, contributions are typically invested in stocks, mutual funds, money market funds, savings accounts and similar types of investments. Each employee is always 100% vested in the contributions to their IRAs.
There are, of course, a few restrictions that also apply to traditional IRAs. For instance, employees can’t borrow from their accounts or use the assets as collateral for loans. If an employee under age 59½ makes a withdrawal, the distribution is subject to a 10% penalty in addition to regular income tax (unless one of the special tax law exceptions applies).
If you decide to adopt a more comprehensive retirement program for your employees at some point, you can transfer the amounts in the payroll deduction IRAs.
Tip: Employees can choose to use Roth IRAs instead of traditional IRAs. With a Roth, contributions are never tax-deductible, but future distributions may be tax-free.
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