a money purchase plan is an employee retirement benefit plan that resembles a corporate profit sharing program an employer deposits a percentage of a participating employee s salary in the account every year but the employee is not permitted to contribute to the fund however they can choose how to invest the money based on options offered by the employer 
understanding the money purchase plana money purchase plan is a qualified retirement plan eligible for tax benefits and subject to tax regulations 1 the rules are similar to those for other qualified retirement accounts the money purchase plan is designed to provide retirement income upon retirement the total pool of capital in the account can be used to purchase a lifetime annuity or withdrawn in a lump sum 2a money purchase plan may be used in addition to an employee s retirement savings such as a 401 k contributions to a money purchase planthe amount in each member s account differs depending on the employer s level of contributions and the investment return earned on those contributions money purchase plans can be used in addition to profit sharing plans or along with other retirement plans in a money purchase plan the employee s account balance is tax deferred until the money is withdrawn while the employer s contribution is tax deductible 1it is similar to a profit sharing plan but the company cannot adjust its contribution level to a money purchase plan as profits go up or down company contributions must be made whether or not the business makes a profit or how much profit it makes for 2023 the overall contribution limits allowed by the irs are the lesser of 25 of compensation or 66 000 1the participant s benefit at retirement is based on total contributions and the gains or losses on investments as long as the contribution amounts remain within the annual limits the money is tax deferred employers typically establish a vesting period after which an employee is eligible for the program after being fully vested an employee may start taking out funds at age 59 without a tax penalty 3like all defined contribution plans rmds are required for a money purchase plan for 2023 the required minimum distribution age is 73 and will increase to 75 in 2033 4advantages and disadvantagesthe money purchase plan can substantially boost retirement savings if used with other savings plans like a 401 k for the company having such a program gives them an edge in competing for talent as the tax benefit levels the expenditure on the downside the money purchase plan may have higher administrative costs than other retirement plans 