From the Internal Revenue Service, U.S. Department of the Treasury

An IRA is essentially a "no fuss, no muss" situation.

The IRA-based plans range from one with little employer involvement to ones that the employer establishes and funds.

Individual Retirement Accounts

An IRA is the most basic sort of retirement arrangement. People tend to think of an IRA as something that just individuals do (hence the "I" in IRA). But an employer can help its employees to set up and fund their IRAs. With an IRA, what the employee gets at retirement depends on the funding of their IRA and the earnings (or income) on those funds.

An online version of the IRA Resource Guide for Small Business Owners and Individuals CD-ROM is available. This narrative (with updates) contains information on IRAs and retirement plans funded with IRAs. A copy of the CD-ROM is available for order.

There are four types of IRA-based plans:

• Payroll Deduction IRA
  Under a Payroll Deduction IRA, an employee establishes an IRA (either a Traditional IRA or a Roth IRA) with a financial institution. The employee then authorizes a payroll deduction for the IRA with the remainder of the employee's pay distributed to the employee as before.
  
  
  • Traditional IRA — A traditional IRA is a personal savings plan that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax deductible — either in whole or in part. Also, the earnings on the amounts in your IRA are not taxed until they are distributed. The portion of the contributions that was tax deductible also does not get taxed until distributed. A traditional IRA can be established at many different financial institutions, including banks, insurance companies and brokerage firms.
  
  
  
  • Roth IRA — A Roth IRA is also a personal savings plan but operates somewhat in reverse compared to a traditional IRA. For instance, contributions to a Roth IRA are not tax deductible while contributions to a traditional IRA may be deductible. However, while distributions (including earnings) from a traditional IRA may be included in income, the distributions (including earnings) from a Roth IRA are not included in income. For both IRA types — traditional and Roth — earnings that remain in the account are not taxed. A Roth IRA can be established at the same types of financial institutions as a traditional IRA.



• SARSEP
  A SARSEP — the Salary Reduction Simplified Employee Pension Plan — is a SEP set up before 1997 that includes a salary reduction arrangement. Because this is a simplified plan, the administrative costs should be lower than for other more complex plans. Instead of establishing a separate retirement plan, in a SARSEP, employers make contributions to their own Individual Retirement Account (IRA) and the IRAs of their employees, subject to certain percentages-of-pay and dollar limits.



• SEP
  A SEP is a Simplified Employee Pension plan. A SEP provides employers a simplified method to make contributions toward their employees' retirement and their own retirement. Contributions are made directly to an IRA set up for each employee (a SEP-IRA).



• SIMPLE IRA Plan
  A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. It gives small employers a simplified method to make contributions toward their employees' retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an IRA set up for each employee (a SIMPLE-IRA). "Check-Ups" are available to help business owners who sponsor retirement plans develop a better understanding of the requirements for their plans.

"Check-Ups" involve a three-step approach with the goal of increasing awareness by business owners of the need to properly operate their retirement plans, pointing them to further information and services.