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Newsletter

Money Purchase Pension Plans

1/3/2019

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Money Purchase Pension PlansA 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’s account regardless of the company’s profitability for the year. These plans can be used in conjunction with profit-sharing plans to achieve the maximum contribution levels allowed each year.
Employers that set up money purchase plans must declare a set contribution level each year in the plan document, based on employees’ salaries. Companies can contribute up to 25% of the total annual compensation of all plan participants, up to 100% of each participant’s salary or $55,000 (in 2018, up from $54,000 in 2017), whichever is less.
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 As with other defined-contribution plans, employee funds accumulate tax deferred until withdrawn.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’s 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.
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 59½ without incurring a tax penalty. Employees may also borrow from their plans before they reach age 59½ if a circumstance occurs that can be identified as a “qualifying event,” as defined in the plan document.
Withdrawals are taxed as ordinary income and must begin after the account holder reaches the age of 70½; withdrawals can be taken as a lump sum or in minimum annual installments based on life expectancy.
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’ behalf while providing you with the added benefit of tax deductions.


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 purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2018 Broadridge Investor Communication Solutions, Inc.
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Securities offered through OneAmerica Securities, Inc., a Registered Investment Advisor, member FINRA SIPC. Sunshine Financial Solutions of South Florida, Inc. is not an affiliate of OneAmerica Securities or the companies of OneAmerica and is not a broker dealer or Registered Investment Advisor. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individual tax, legal, fiduciary, or investment advice. Neither OneAmerica Securities, the companies of OneAmerica, or Sunshine Financial Solutions of South Florida, Inc. provide tax or legal advice. For answers to specific questions and before making any decisions, please consult a qualified attorney or tax advisor. Guarantees are subject to the claims paying ability of the issuing insurance company.
  • Home
  • About Us
    • About Us
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    • Our Partners
    • Join Our Team
    • Brokerage Services
  • Our Services
    • Individuals and Families
    • Business Owners
    • Retirees/Medicare Eligible
  • Planning
    • Life Insurance
    • College Planning
    • Retirement Planning
    • Build Wealth
    • Disability Insurance
    • Mortgage Protection
    • Business Valuation
    • Long Term Care
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  • Business
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