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roth ira tax deduction

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									Payroll Deduction IRA Plan

What is it?
A payroll deduction IRA plan is really nothing more than a special type of program that you can
establish to allow your employees to contribute to their own IRAs via payroll deduction. It can be
offered to your employees as an alternative to a more conventional employer-sponsored
retirement plan (such as a 401(k) plan), or in addition to such a plan. With a payroll deduction
IRA plan, each of your employees who chooses to participate maintains his or her own separate
IRA. The IRAs can be either traditional IRAs or Roth IRAs.

Each participant elects to have a certain amount per pay period deducted from his or her
compensation on an after-tax basis (rather than receiving that amount in cash). That amount is
then deposited into the participant's designated IRA.

   Tip:      Aside from being funded through payroll deduction, the IRAs are subject to
   the same rules that normally apply to IRAs (traditional and Roth).



What is the employer's role?
A payroll deduction IRA program is funded with employee payroll deductions. This means that
there are no employer contributions to participants' IRAs. In fact, as the employer, your role is
generally limited to: (1) setting up the program with an IRA sponsor (e.g., a bank, credit union,
mutual fund company, or insurer), (2) providing potential participants with enrollment materials,
information and educational materials about the program, and (if desired) retirement savings
counseling, and (3) processing the payroll deductions and delivering those amounts to the IRA
sponsor to be invested in participants' IRAs. Payroll deduction IRA programs meeting these
requirements are not pension plans under ERISA Title I, so ERISA's administrative, record-
keeping, and other requirements do not apply.

   Caution: To ensure that a payroll deduction IRA program will not be treated as an
   ERISA-covered plan, the following conditions must apply: (1) there are no employer
   contributions to the program, (2) employees participate in the program on a completely
   voluntary basis, (3) the employer is neutral with respect to the IRA sponsor when giving
   employees information about the program, and (4) the employer receives no benefit for
   offering the program, although a reasonable charge may be assessed for the service of
   processing payroll deductions.

   Tip:        According to DOL Reg. Sec. 2509.99-1, an employer may demonstrate its
   neutrality with respect to an IRA sponsor in a variety of ways, including (but not limited
   to) by clearly and prominently stating, in language reasonably calculated to be
   understood by the average employee, that: (1) the payroll deduction IRA program is
   completely voluntary, (2) the employer does not endorse or recommend either the



                           Securities offered through H. Beck, Inc. Member: FINRA/SIPC
                            Carney Antell, LLC and H. Beck, Inc. are unaffiliated entities
   sponsor or the funding media, (3) other IRA funding media are available to employees
   outside the program, (4) an IRA may not be appropriate for all individuals, and (5) the tax
   consequences of contributing to an IRA through the program are generally the same as
   the consequences of contributing to an IRA outside the program.



When can it be used?
In general, any type of employer with one or more employees can set up and offer a payroll
deduction IRA program. However, this type of program is generally most appropriate for
employers that: (1) cannot afford to match employee contributions or otherwise fund employees'
retirement, and (2) do not have the time and resources to manage a full-fledged retirement
program, such as a SEP, SIMPLE, or 401(k) plan. This may be the case with some small and
medium-size companies. Despite their resource limitations, many such employers would still like
to help their employees save for retirement on a regular basis. A payroll deduction IRA program
can provide a way to do just that. This type of program may also appeal to employers that have
a 401(k) or other retirement plan, but want to give employees the opportunity to supplement
their retirement savings.

   Tip:        The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
   created a new retirement vehicle called "deemed IRAs." Deemed IRAs, available since
   January 1, 2003, allow employees to keep their IRA assets in the employer's tax-
   qualified retirement plan as a separate account (traditional IRA, Roth IRA, or both) within
   the plan. This may be more attractive than a payroll deduction IRA plan for employers
   that maintain a qualified plan because the deemed IRA assets (like other qualified plan
   assets) are eligible for protection from creditors under both federal law (ERISA) and
   state law. Regular IRAs are not eligible for federal ERISA protection (though state law
   may provide some protection). Employers are not required to offer deemed IRAs. The
   IRS has recently issued final regulations (Treasury Regulation 1.408(q)) that describe
   the rules applicable to deemed IRAs.



Advantages of payroll deduction IRA plans
Whether offered in addition to or instead of another retirement plan, a payroll deduction IRA
program can have certain benefits for both you and your participating employees.

Advantages for employer

      This type of program is easy to set up and maintain, with little or no administration and
       expense.
      The program is funded solely with employee payroll deductions.
      This type of program is not subject to the reporting, nondiscrimination, top-heavy, and
       other requirements that apply to qualified retirement plans.
      This type of program generally does not interfere with your ability to establish another
       type of retirement plan for your business, or maintain an existing plan.




                           Securities offered through H. Beck, Inc. Member: FINRA/SIPC
                            Carney Antell, LLC and H. Beck, Inc. are unaffiliated entities
      Participating employees are responsible for choosing their own IRA investments and
       allocating their money among investments, and you are not liable for how those
       investments perform.
      Like other retirement plan arrangements, this type of program may be considered a
       valuable employee benefit, and may help promote employee loyalty and productivity.

Advantages for employees

      Because of the payroll deduction feature, this type of program offers a convenient and
       reliable way for employees to systematically save for retirement. Without the payroll
       deduction feature, an IRA owner may be more likely to fund the account inconsistently
       and/or not as fully.
      Employee participation in these programs is strictly voluntary.
      Each participant decides what amount to contribute to his or her account each pay
       period. However, total contributions for the year cannot exceed the annual IRA
       contribution limit--see below.
      Participants generally have the flexibility to start, stop, and restart contributions to the
       program at their discretion.
      Participants are always 100 percent vested in their accounts under this type of program.
      Although the payroll contributions are made on an after-tax basis, all or part of a
       participant's IRA contribution may be tax deductible on his or her federal income tax
       return. (Roth IRA contributions are never tax deductible, while deductibility of traditional
       IRA contributions depends on several factors. For more information, see Traditional
       IRAs.)
      Some participants may qualify for a partial income tax credit for contributions to an IRA
       (traditional or Roth), in addition to any tax deduction that might apply. For more
       information, see Tax Credit for IRAs and Retirement Plans.
      As with 401(k)s and other retirement plans, IRA dollars grow tax deferred. In other
       words, any investment earnings are not taxable until distributed from the IRA (and Roth
       IRAs may generate tax-free distributions).
      Depending on the program, participants may have a number of investment alternatives
       to choose from.



Are there any disadvantages?
From your perspective as the employer, because it is so easy and inexpensive to have a payroll
deduction IRA program, there is no perceivable disadvantage to doing so--other than the fact
that you do not receive any income tax deduction, but that is only because you are not
contributing anything to the plan. For your participating employees, however, there are a few
potential drawbacks, especially if this is the only type of retirement program that you offer:

      The program is entirely employee-funded, so participants receive no employer dollars to
       supplement their own contributions. With other types of plans, employer contributions
       may boost employee morale and productivity.




                           Securities offered through H. Beck, Inc. Member: FINRA/SIPC
                            Carney Antell, LLC and H. Beck, Inc. are unaffiliated entities
      The annual contribution limit for IRAs is a relatively low $5,000 for 2008($4,000 for2007)
       ($6,000 and $5,000 respectively if age 50 or older), possibly lower in the case of a Roth
       IRA. By contrast, in a 401(k) plan, a participant can defer up to $15,500 ($20,500 if age
       50 or older) of salary to the plan for 2008 (and 2007).

   Caution: In the case of a Roth IRA, the contribution limit is phased out for individuals
   with adjusted gross income in excess of certain thresholds. For more information, see
   Roth IRAs.

      A participant's tax deduction for IRA contributions may be limited or nonexistent,
       depending on the type of IRA and the participant's circumstances. By contrast, most
       employee salary deferrals to a 401(k) plan are made on a pretax basis.
      Participants are not allowed to take loans from their IRAs if they need money. By
       contrast, with many employer-sponsored plans, participants are able to borrow a portion
       of their vested benefits.
      Under federal law, funds held in a qualified retirement plan are fully protected from the
       participant's creditors. However, only one million dollars of traditional and Roth IRA
       assets (excluding amounts rolled over from certain employer plans) are protected under
       federal law, and only in the event of the participant's bankruptcy. Any additional
       protection from creditors is available only to the extent that state law provides such
       protection.



How is it implemented?
A payroll deduction IRA program is fairly easy to implement. Simply establish a payroll
deduction program with a bank, mutual fund company, or other financial institution. Each
employee who chooses to participate in the program sets up his or her own IRA with the
sponsoring institution. You then arrange for participating employees to make payroll deduction
contributions to their IRAs.




For more information on this and other topics that relate to retirement plans,
benefits, investments and financial planning contact: Tim Carney CFP® at 800-639-
3445 ext. 28 or tcarney@carneyantell.com



Neither Carney Antell, LLC nor Associated Industries of Vermont provide legal, taxation or
investment advice. All the content provided is protected by copyright. Neither Carney
Antell, LLC nor Associated Industries of Vermont claims any liability for any modifications to
its content and/or information provided by other sources.




                          Securities offered through H. Beck, Inc. Member: FINRA/SIPC
                           Carney Antell, LLC and H. Beck, Inc. are unaffiliated entities

								
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