Putting your IRA in the hands of the boss: it may save you fuss
What's the easiest way to save money for retirement? Let your boss save it for you. The biggest boost to the new individual retirement accounts (IRAs) may come from millions of American workers who let their employers take IRA money out of their paychecks even before the checks are handed out. Sometimes called ''employer-sponsored IRAs,'' these payroll deduction programs make it so easy for every worker to save up to $2,000 of pretax income a year, many people may already be asking their employers if they plan to offer an IRA plan; and if not, why not?
When the employer sets up an IRA for his workers, he finds the best place for the investments, he changes those investments when needed, and he handles all the messy paper work.
And, if he has a large brokerage house or mutual fund handling the IRA, he may not even have to bother with very much paper work. Some investment companies have installed tape-to-tape computer systems so an employer's computer can give the investment company's computer a weekly, semi-monthly, or monthly list of contributing employees and the amounts being deposited. The money is then automatically transferred from the company's bank account to the broker's.
Also, with a larger pool of money to invest, the performance of a group IRA should be better than an individual IRA.
But before you put the arm on your boss to get you and your co-workers into a group IRA plan, there are a few notes of caution, a few questions, to keep in mind:
* Where is the money going to be invested?
If it is being put into the same investments as the company's existing pension plan, find out how the plan is doing. If the plan was set up several years ago, it may not be keeping up with some of the higher returns available today.
* How wide is your choice of IRA investments?
If the money is divided among only two or three investments, you don't have much choice about where it should be at a particular time. However, if the employees are given a choice of several investments, or if the money is with a big mutual fund company managing a large ''family'' of funds, then you can move all or part of your retirement kitty to a variety of stock, bond, or money market funds as circumstances dictate.
* How ''portable'' is your investment?
If you leave the company, do you have immediate access to your IRA account? At some companies, money can be taken out of a retirement account only at certain times of the year. If you leave in January, for instance, you may not be able to get at the IRA until June.
* Is the employer meeting his fiduciary responsibilities with your IRA account?
With an ordinary pension plan, employers are required to follow a ''prudent man'' rule, which means they must make investments that would be generally recognized as sound or prudent. If they don't, they can be sued for violating their fiduciary trust. Presumably, the same rules will apply to IRA accounts. While this may prompt employers into safer investments, these may also be more conservative than you desire. If they are, you will have to decide if safety or yield is most important to you.
* Do you want to open a spousal IRA?
This type of IRA permits a married person to increase the annual contribution to $2,250, if the spouse is not working. But because IRAs set up by employers have to rely on contributions from workers, the limit stays at $2,000. So if you can afford to put $2,250 in a spousal IRA, you'll have to set it up on your own.
* Is your employer setting up a ''qualified voluntary'' program instead of an IRA?
If he is, this may not necessarily be a bad thing. Under a qualified voluntary plan, pretax contributions are made within the existing pension plan. While the same $2,000 limits apply, workers aren't required to make withdrawals at age 701/ 2, which is the case with IRAs. But like IRAs, money cannot be taken out penalty-free before age 591/ 2.
Also, until people can see what kinds of employer-sponsored IRA investments have had the best performance over a year or two, workers may feel more comfortable in a qualified voluntary program.
If you aren't satisfied with the answers to these questions, go out and set up your own IRA. But even if the IRA offered by your boss isn't doing as well as you could do on your own, remember that saving under his plan is better than not saving at all.