Money Purchase Pension Plans

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’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 $50,000 (in 2012), 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 As with other defined-contribution plans, employee funds accumulate tax deferred until withdrawn.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 at the age of 59½ without incurring a tax penalty. Employees may also borrow from their plans before they reach 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, either 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 article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal 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 Emerald. © 2012 Emerald Connect, Inc.

Securities and investment advisory services offered through ING Financial Partners, Inc., member FINRA, SIPC.

Federal and state insurance and securities rules and regulations prohibit registered representative(s) and/or investment adviser representative(s) from soliciting, offering and selling any insurance or securities products or providing investment advice until they are properly registered and licensed in each state jurisdiction.

The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

*Tyrpak Financial Associates, Inc. - address 6622 Main Street, Suite 6, Williamsville, NY 14221.

Securities and investment advisory services offered through ING Financial Partners, Member SIPC.

Tyrpak Financial Associates, Inc. is not a subsidiary of or controlled by ING Financial Partners.

Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered. A Broker/Dealer, Registered Investment Adviser, Registered Representative or Investment Adviser Represetative may only transact business in a particular state after licensure or satisfying qualifications requirements of that state, or only if they are excluded or exempted from the state's Broker/Dealer, Registered Investment Adviser, Registered Representative or Investment Adviser Representative requirements, as the case may be; and follow-up, individualized responses to consumers in a particular state by Broker/Dealer, Registered Investment Adviser, Registered Representative or Investment Adviser Represetative that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, shall not be made without first complying with the state's Broker/Dealer, Registered Investment Adviser, Registered Representative or Investment Adviser Represetative requirements, or pursuant to an applicable state exemption or exclusion.

The information on this website is intended for use only by residents of the states listed below. Securities related services may not be provided to individuals residing in any state not listed.

We are licensed to sell Insurance Products in the following states: Florida, Georgia, New Jersey, New York, North Carolina and Pennsylvania.

We are registered to sell Securities in the following states: Arizona, California, Florida, Georgia, Massachusetts, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas.