Money Purchase Plan Overview

The Money Purchase Plan

The Money Purchase Plan is designed to provide a fixed employee contribution up to 25% of eligible compensation up to $42,000 in 2005 (per participant). Contribution specifics are established in the plan document. This is a required contribution; it must be made regardless of business performance.

Because of the greater flexibility available in profit sharing plans and tax law changes bringing parity between profit sharing and money purchase plans, money purchase plans have largely fallen out of favor. There are, however, a few settings where they continue to be utilized: Unions often prefer to receive retirement plan contributions through money purchase plans due to their required nature, and some individuals (particularly physicians) will maintain “0%” money purchase plans in order to protect prior accumulated plan assets from creditor claims.