Money Purchase Vs Retirement Plan

When comparing the retirement plans, money purchase plan, profit-sharing, and employee stock ownership plan and 401(k) it is determined that all types of defined-contribution plans (Noe, 2011). Money purchase plan requires setting annual contributions from the employer to individual accounts and is subject to certain funding and other rules. In other words, the employees' to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. I believe the money purchase plan is a contributory plan retirement plan. “Whereas, profit-sharing and employee stock ownership plans contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution. The profit-sharing plan may also include a 401(k) feature. This plan would be considered as a noncontributory plan retirement plan (Noe, 2011).” While, in the 401(k) plan the employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan. The 401(k) Plan is a contributory plan retirement plan. …show more content…
The advantages money purchase plan to the employer is that contributions are a tax deductible business expense, and the employer may exclude certain employees. The disadvantages of the money purchase plan to the employee are that withdrawals of contributions may be restricted and the investment decisions may be controlled by the employer. The disadvantages of the money purchase plan to the employer are that it requires funds to annual contribution and they are required to file Form 5500 annually with the