Money Purchase Pension Plans
A Money Purchase Plan design is a defined contribution
pension plan. We used to suggest a company with solid annual profits include a Money
Purchase Plan in combination with a 401(k) or other Profit Sharing format to maximize
contributions and deductions.
Contributions are a fixed commitment that must be met each year for as long as the plan
is in operation. The plan specifies a contribution formula which may be amended
The maximum tax-deductible contribution which can be made is 25% of the compensation of
all the employees eligible to participate in the plan up to $42,000 for each
account in 2005.
Contributions are not included in employees' income for income tax or Social Security
Earnings in the plan grow on a tax-deferred basis.
The plan enhances the company's ability to attract and retain
In our opinion, since the EGTRRA Tax Act of 2001
while there is no significant reason to continue a money purchase pension plan
as the more flexible 'profit sharing' plan design provides for the same
contribution limits and permits discretionary funding during difficult
cash flow periods, there may be specific situations where money purchase
plans still serve a purpose. One of those situations may exist if the
employer desires to provide a substantial and definite contribution for
the plan participants.
Filing Requirements: Annual filing
of Form 5500 may or may not be required.
Who May Not Have To File
You do not have to file Form 5500-EZ (or Form 5500) for a plan year
(other than the final plan year) that begins on or after January 1,
2007, if you meet the five conditions above and you have one or more
one-participant plans that separately or together had total assets of
$250,000 or less at the end of that plan year.
Example for plan years beginning on or after January 1, 2007.
If total assets in a plan (or in two or date more plans, separately or
together), that otherwise
satisfies the requirements for filing the Form 5500-EZ, exceeded
$250,000 at the end of the 2007 plan year, a Form 5500-EZ must be filed
for the 2007 plan year.
Final plan year. All one-participant plans should file the Form
5500-EZ for their final plan year indicating that all assets have been
distributed. The final plan year is the year in which distribution of
all plan assets is completed. Check the “final return” box at the top of
Form 5500-EZ if all assets under the plan(s) (including
insurance/annuity contracts) have been distributed to the participants
and beneficiaries or distributed to another plan.
Successor Plan Rule
provided for review and consideration only. Please consult legal and tax
practical advice pertaining to your business and personal situations.
This page was last reviewed and/or updated
Friday, July 03, 2015 05:21 PM