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Payroll deduction IRAs

Payroll deduction IRAs can be a low-cost, simple way workers can save for retirement.

Employees set up a traditional or Roth IRA on their own, and then let the employer know how much they’d like to contribute from each paycheck.

Any employer or sole proprietor can set up a payroll deduction IRA program. Here are the basics:



Employers who set up payroll deduction IRAs must allow all employees to participate. There are no service-length requirements. Employees are responsible for setting up a traditional or Roth IRA and must meet IRA eligibility requirements.



Employees determine how much of their paychecks they want to contribute to their IRAs. The 2024 contribution limit for IRAs is $7,000, or $8,000 for investors age 50 or older. Employer contributions are not allowed.



Employees who set up a payroll deduction IRA benefit from all of the tax advantages offered by IRAs.

Traditional IRA contributions are made before taxes are deducted, which means that income taxes are not paid at the time of investment. Instead, taxes are paid when the money is withdrawn, including on any earnings. This deferred tax leaves more money in an employee’s pocket — money to invest, save or spend.

Roth IRA contributions are made with money that has been taxed. Money that’s been taxed won’t be taxed when employees withdraw it. Additionally, any earnings are tax- and penalty-free for qualified distributions.*

* Withdrawals from Roth accounts are tax- and penalty-free if the account was established at least five years before, and if the owner is at least 59½ years old, disabled or deceased. For nonqualified distributions, earnings are taxable and may be subject to a 10% early withdrawal penalty.



Payroll deduction IRA distributions follow traditional and Roth IRA distribution rules.

Traditional IRA — Distributions are taxable, but can be taken without penalty after age 59½. Distributions before age 59½ are subject to a 10% early withdrawal penalty, although exceptions may apply, such as for periodic payments, withdrawals for disability, medical bills or a first-home purchase.

Roth IRA — Distributions up to the amount contributed can be made at any time without taxes or penalties. Distributions from earnings are tax- and penalty-free if the first Roth contribution was made at least 5 years before and the investor is at least 59½, is purchasing a first home, or is disabled or deceased. Otherwise, taxes and penalties may apply.

Easy administration


Contributions are automatically deducted from employee paychecks.

  • There are no IRS forms to complete.
  • The program can be discontinued at any time without penalty.
  • Employers have no fiduciary liability because the retirement plan is not employer-sponsored.

Setting up an account

Employers can start a plan with American Funds by contacting their financial professional. Don't have a financial professional?

Other resources

Investment options

Employees can establish an IRA with American Funds or another financial institution, and choose any of the investments offered.

American Funds Target Date Retirement Series®

Select a target date fund that is based on your nearest anticipated retirement date. A single investment provides a fund-of-funds portfolio of actively managed American Funds aligned with an investor’s time horizon.

American Funds Portfolio SeriesSM

With objectives like growth, income and preservation, these funds of funds offer diversification and control in a single investment.

Individual mutual funds

Investors can build an investment portfolio of American Funds to meet their specific preferences and needs.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Although the target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors' retirement goals will be met. Investment professionals manage the portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the target date gets closer. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals. Investment professionals continue to manage each portfolio for approximately 30 years after it reaches its target date.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
American Funds Distributors, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Allocations may not achieve investment objectives. The portfolios' risks are directly related to the risks of the underlying funds.