A money purchase plan is a defined contribution plan where contributions are credited to the account of each participant according to his or her compensation. A money purchase plan promises each participant a fixed percentage of compensation will be contributed each year. Because of this promise, contributions to the plan are required to be made each year. Annual additions are limited to 25% of compensation or $30,000, whichever is less. Since profit sharing plans are limited to 15% of compensation, money purchase plans are often used in conjunction with profit sharing plans to enable the employer to contribute the maximum 25% of compensation but still have the profit sharing portion of the total contributions discretionary.

An example of a money purchase study can be viewed below.

Money Purchase Study 1

Money Purchase Plan FAQs