DEFINITION of 'Payroll Deduction Plan'

A contribution plan in which an employer deducts a specified amount from an employee's pay and puts the funds toward insurance, healthcare or an investment account. In most situations, employees enter into payroll deduction plans on a voluntary basis.

BREAKING DOWN 'Payroll Deduction Plan'

Payroll deduction plans offer employees a convenient way to automatically contribute income toward an ongoing expense or investment. For example, it is common for employees to deduct a set percentage of income and contribute it to their Traditional or Roth IRAs. An employee may also choose to have the premiums from an insurance policy deducted from their pay, ensuring that a payment is never missed.

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