Money Purchase Pension Plans

Money purchase pension plans are similar to profit-sharing plans, but employers are required to make an annual contribution.  Participants receive their respective share according to the plan document's formula.

As with profit-sharing plans, money purchase pension plans cap individual contributions at 100% of earnings or $56,000 annually (in 2019; $55,000 in 2018), while employers are allowed to make deductible contributions up to 25% of the total compensation of all plan participants. (To go back to the previous example, the total deductible contribution would again be $50,000: ($50,000 x 4) x 25% = $50,000.)

Like profit-sharing plans, money purchase pension plans are relatively straightforward and inexpensive to maintain. However, they are less popular than profit-sharing or 401(k) plans because of the annual contribution requirement.