A money purchase plan is an employer-sponsored retirement plan. The employer must deposit a percentage of a participating employee’s salary in the account every year. The employee is permitted to contribute to the fund as wel♐l, and they can choose how to invest the money based on options offered by the employer.

With a money purchase plan, the employee’s account balance is tax deferred until the money is withdrawn, while the employer’s contribution is tax deductible.

Understanding Money Purchase Plans

A money purchase plan is a tax-advantaged, 澳洲幸运5开奖号码历史查询:qualified retirement plan that is subject to tax regulations. The rules are similar to those for other qualified r𝄹etirement accounts:

• If you leave your employer, you can roll the money over into a 401(k) or an 澳洲幸运5开奖号码历史查询:individual retirement account (IRA)
• You can’t withdraw the funds before age 59½ without incurring a 10% early withdrawal penalty
• Your employer may authorize loans from the account

The money purchase plan is designed to provide retirement income. During 澳洲幸运5开奖号码历史查询:retirement, you can withdraw funds gradually or in a lump sum.

Employers typically establish a 澳洲幸运5开奖号码历史查询:vesting period after which an employee is eligible for the program. After being fully vested, an employee may start taking out funds at age 59½ without a tax penalty.

Contributions to a Money Purchase Plan

The Internal Revenue Service (IRS) sets the contribution limit each year to keep pace with 澳洲幸运5开奖号码历史查询:inflation. For tax year 2024, the limit is $69,000 or 25% of the employee’s compensation, whichever is less. (For tax year 2025, it is $70,000 or 25% of the employee’s compensation, whichever is less.)

It is different from a profit-sharing plan, because the company cannot adjust its contribution level as profits go up or down. Company contributions must be made whether or not theꦛ ♎business makes a profit, or how much profit it makes.

The participant’s benefit at retirement is based on total contributions and the gains or losses on investments. As long as the contribution amounts remain within the annual limits, the money is tax deferred.

The Bottom Line

A money purchase plan is an employer-sponsored retirement plan that requires companies to contribute a specific percentage of an employee’s salary each year, regardless of the company’s profitability. In this way, it’s different from a corporate profit-sharing program. And like most retirement plans, it disincentivizes early withdrawals with a 10% penalty for distributions before age 59½. The plan also has a provision for required minimum distributions.