Types of Retirement Plans
Private sector retirement plans may be IRA-based plans or qualified plans.
IRA-based plans are simpler and less costly to set up and administer than qualified plans.
As a self-employed individual and small business owner you can set up the following retirement plans for yourself and your employees (if any):
- IRA-based plans:
- Qualified plan
Payroll Deduction IRAs
If you have employees and you don't want to adopt a retirement plan, but would still like to help your employees save for retirement, they could contribute to their own IRA through payroll deductions.
You, as the employer, arrange to transmit their funds to the financial institution where their IRA account is maintained.
For tax year 2011 an employee may contribute up to $5,000 through payroll deductions ($6,000 if 50 or older).
With a payroll deduction IRA, the employee is in the drivers' seat.
- sets up his own IRA account at a financial institution,
- decides whether or or not to contribute to his IRA,
- controls when and how to contribute, and
- authorizes the employer to deduct a specified amount from his pay to be deposited in his IRA account.
For Freelancers and independent Contractors
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Have an accounting or bookkeeping question? Email it to me.
- Return to the Retirement Plans Table of Contents to find related links