A money-purchase plan is an employee benefit plan established by a company for its employees, which may consist of stock-purchase, savings, bonus, profit-sharing, or pension plans. This plan is exclusively available to employees, officers, and advisers of the company. The company makes contributions to the plan, and employees typically have the freedom to decide how to invest the funds. Upon retirement, employees are eligible to receive benefits from the plan.
A money-purchase plan is an employee benefit plan designed for employees, officers, and advisers of a company. It encompasses various plans such as stock-purchase, savings, option, bonus, stock-appreciation, profit-sharing, thrift, incentive, pension, or similar plans. The plan mandates employer contributions, regardless of the company’s profits, often expressed as a percentage of employee compensation. For instance, one company establishes a money-purchase plan where the employer contributes 5% of each employee’s salary annually, irrespective of the company’s profits. Another company implements a money-purchase plan that includes a profit-sharing component, where the employer contributes a percentage of the company’s profits in addition to the mandatory contributions. These examples demonstrate how a money-purchase plan operates by necessitating mandatory employer contributions, typically based on a percentage of the employee’s salary. The plan may also involve additional contributions based on the company’s profits or other factors. Over time, these contributions are invested and accumulate, and the employee receives the benefits upon retirement or other qualifying events.
A money-purchase plan is a type of retirement plan where employers make fixed contributions to an employee’s retirement account based on a percentage of their salary.
Unlike other retirement plans such as a 401(k) or IRA, a money-purchase plan requires employers to make mandatory contributions to the employee’s retirement account.
In most cases, employees cannot contribute to a money-purchase plan. The contributions are solely made by the employer.
Yes, employer contributions to a money-purchase plan are generally tax-deductible, up to certain limits set by the IRS.
Yes, the IRS sets annual limits on the amount employers can contribute to a money-purchase plan. These limits are subject to change and should be reviewed regularly.
In general, employees cannot withdraw funds from a money-purchase plan before reaching the plan’s designated retirement age without incurring penalties. However, there may be exceptions for financial hardship or other specific circumstances.
When an employee changes jobs, they can typically roll over their money-purchase plan into a new employer’s retirement plan or an individual retirement account (IRA) to maintain the tax-deferred status of the funds.
Employers have the ability to terminate a money-purchase plan, but they must follow specific legal requirements and provide notice to employees. In such cases, employees may have the option to roll over their funds into another retirement plan.
Unlike some other retirement plans, money-purchase plans generally do not allow employees to take loans against their account balance. However, there may be exceptions depending on the specific plan provisions.
If an employer goes bankrupt, the money-purchase plan is typically protected under ERISA (Employee Retirement Income Security Act) regulations. The plan assets are held separately from the employer’s assets and should be accessible to employees even in the event of bankruptcy.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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