money purchase plans

Does the job you have offer an MPP, or Money Purchase Plan, that you take part in?

Money Purchase Plans are not mentioned in the press much, however they are a significant, employer funded, tax advantaged retirement program.

An Overview of Money Purchase Plans

MPPs are retirement instruments provided by a few for profit firms, where employees and employers make contributions relative to yearly wages.

In contrast to Profit Sharing Plans, where contributions are linked to a company’s yearly profitability, the yearly salary percentage that is allocated to MPPs stays the same every year, as per the plan’s conditions.

In spite of the requisite employer contributions, MPPs are defined contribution programs nonetheless, the same as 401ks. The reason for this is that employees still control their investments (in the manner permitted by the program), and still get to decide when to withdraw cash.

Every contribution you make to your MPP is tax deductible, and capital growth is taxed at a later date.

One big drawback to some MPPs is that they often have large admin fees for retirement accounts, which depletes your investment ROI.

Also, you are not allowed to use your MPP to take a loan out, in contrast to several defined contribution programs.

It is hard to roll over MPPs, based on the program’s rules.

Rollover Limitations & Rules for MPPs

If you’re below the age of retirement and employed, consult your particular program paperwork for MPP rollover regulations. With regards to the Internal Revenue Service though, MPPs are categorized in the same way as other certified retirement plans, and you can roll these over into a new IRA, or an employer’s 401k.

If you withdraw cash before you reach retirement age, penalties are applicable.

Furthermore, if you plan to try a rollover, you ought to carry out a direct rollover, as opposed to an indirect rollover. You may be subject to early distribution fines, due to the withholding requirements associated with indirect rollovers.

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Author: Doug Young