A money purchase plan is a type of defined-contribution plan that is similar to a profit-sharing plan, except that the contribution amounts are fixed rather than variable. Thus, employers are required to make annual contributions to each employee\u2019s account regardless of the company\u2019s profitability for the year. These plans can be used in conjunction with profit-sharing plans to achieve the maximum contribution levels allowed each year.<\/p>\n
Employers that set up money purchase plans must declare a set contribution level each year in the plan document, based on employees\u2019 salaries. Companies can contribute up to 25% of the total annual compensation of all plan participants, up to 100% of each participant\u2019s salary or $70,000 in 2025 (up from $69,000 in 2024), whichever is less.<\/p>\n
Employer contributions are tax deferred as long as the amounts are within annual limits. As with other defined-contribution plans, employee funds accumulate tax deferred until withdrawn. It\u2019s important to note that employees are not given the option of contributing additional money to their own accounts. However, they are often allowed to choose which investments will be included in their accounts.<\/p>\n
It is common for employers to set up vesting schedules that dictate when an employee can claim the funds from his or her plan. When employees are fully vested, they are able to begin taking withdrawals upon reaching age 59\u00bd without incurring a federal tax penalty. Employees may also borrow from their plans before they reach age 59\u00bd if a circumstance occurs that can be identified as a \u201cqualifying event,\u201d as defined in the plan document.<\/p>\n
Withdrawals are taxed as ordinary income and must begin after the account holder reaches the age of 73 (75 if age 73 is reached after December 31, 2032). Withdrawals can be taken as a lump sum or in minimum annual installments based on life expectancy.<\/p>\n
If you are a business owner and desire to attract employees from larger corporations that offer a wide range of retirement plans, then a money purchase pension plan may be an option for you. It allows you to contribute high amounts on your employees\u2019 behalf while providing you with the added benefit of tax deductions.<\/p>\n
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The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the \u00adpurpose of \u00adavoiding any \u00adfederal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the \u00adpurchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2025 Broadridge Financial Solutions, Inc.<\/p>\n","protected":false},"featured_media":1006,"template":"","meta":{"_acf_changed":false},"article-category":[19],"class_list":["post-1005","articles","type-articles","status-publish","has-post-thumbnail","hentry","article-category-retirement"],"acf":[],"yoast_head":"\n