A money purchase plan is a type of defined-contribution retirement plan in which an employer is required to contribute a certain percentage of an employee's salary every year.
Employers who create plan are required to specify an annual contribution level based on employee salaries. Employee may select how to invest the money based on alternatives plans.
Any size of firms can offer money purchase plan to their employees. These plans can be provided separately or along with other types of retirement plans.
The IRS has set annual limits for all employer and employee contributions to money purchase plans. The limits for 2023 are the lesser of 25% of compensation or $66,000.
Employee who has reached full vesting may begin taking distributions at age 59½ without incurring a tax penalty, they have option of take a lump sum or regular payments out.
In addition to regular taxes, any withdrawals made before to reaching the age of 59½ will incur a 10% early distribution penalty. In addition, RMD apply to money purchase plan.