Tags: Retirement | money purchase plans | retirement

What Are Money Purchase Plans

By    |   Wednesday, 12 August 2015 02:28 PM

Money purchase plans are types of pension plans. The plans require employers to make contributions to the accounts of individual employees. The retirement distributions a worker receives are based on the contributions and the accumulation or losses by the time of retirement.

Employers who choose to include these plans for workers must abide by the terms of the plan, according to the IRS. The employer sets the amount, generally a percentage of an employee’s pay, to be contributed to the employee’s account and is required to make that contribution. A money purchase plan differs from a profit-sharing plan, in which the employer decides a certain overall amount to contribute and allocates that amount to the accounts of eligible employees.

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Money purchase plans are easier to set up and maintain than some other retirement plans for small businesses, Wells Fargo noted. This enables small business owners to attract qualified workers and compete with larger companies. For employees, the money in their accounts grows tax-deferred, so it can accumulate quickly. Money is taxed when it is withdrawn, usually during retirement.

Employers make the set contributions for the plans regardless of a company’s profitability each year, unlike profit-sharing plans that have variable amounts. Companies can contribute as much as 100 percent of each eligible employee’s salary or up to $53,000 for the qualified retirement plan, according to Bassett, Dawson & Foy, a financial service company in Wilmington, Delaware. Contributions can amount to up to 25 percent of the total annual compensation of the company for the plans.

Employees cannot contribute additional money to their money purchase plans, but they may be allowed to choose the investments in the plans, according to the way the plans were set up by the employer.

Money purchase plans allow loans to employees in certain circumstances. As with other qualified retirement plans, people can begin taking withdrawals at age 59 1/2 without tax penalties.

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Money purchase plans are types of pension plans. The plans require employers to make contributions to the accounts of individual employees. The retirement distributions a worker receives are based on the contributions and the accumulation or losses by the time of retirement.
money purchase plans, retirement
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2015-28-12
Wednesday, 12 August 2015 02:28 PM
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