What type of retirement plan is known for allowing employees to contribute through payroll deductions?

The retirement plan known for allowing employees to contribute through payroll deductions is the SIMPLE IRA. This type of plan is designed specifically for small businesses and allows employees to make salary deferral contributions directly from their paychecks. This feature makes it easy for employees to save for retirement consistently, as the contributions are automatically deducted from their gross income before taxes are applied.

The SIMPLE IRA also encourages employee participation by allowing employers to match a portion of the employee contributions, enhancing the retirement savings potential. The simplicity in administration and ease of setup makes it particularly appealing for small business owners looking to offer a retirement savings option to their employees.

In contrast, other plans such as the Keogh Plan and SEP IRA primarily cater to self-employed individuals and business owners, rather than employees. A Defined Benefit Plan focuses more on providing a predetermined payout at retirement, typically funded by the employer, rather than allowing employee contributions through payroll deductions. Thus, the characteristics of a SIMPLE IRA align directly with the employee contribution model through payroll deductions.