Money Purchase Plans
What is a Money Purchase Plan?
The IRS does not look favorably on Profit Sharing Plans to which contributions are not made at least periodically. Accordingly, today, money purchase plans are often established as 0% money purchase plans, thereby not requiring a contribution. Such a plan would provide a vehicle to accept rollover monies and would have advantages over an Individual Retirement Account. Such advantages include the ability to take loans, to maintain life insurance and to allow for a broader range of investment options.
There is no advantage to establishing a Money Purchase Plan with a fixed percent-of-pay contribution as compared to a Profit Sharing Plan with a discretionary contribution. Except for the 0% money purchase plan described above, we would not recommend establishing a money purchase plan.