Skip to main content
No. of Recommendations: 0

<<Hello all, I belong to a union which has a defined benefit pension plan and also a money purchase plan. I am in the process of trying to get our members to convert the money purchase plan into a 401k plan,to allow more flexibility. I have been told that the amount of deferred compensation has a limit of 25%. Is this correct? If so then 25% of what? 25% of the amount on the w-2's or 25% of "total package" i.e. taxable wages + all benifits. Also are there any differences in the tax benefits for the employer between a money purchase plan vs a 401k plan? >>

A money purchase plan has an overall limit of 25% of compensation or $30K, whichever is less, that may be contributed to an employee's account. The plan will define compensation, but it is W-2 wages in essence. The plan itself may use base wage and exclude overtime, commissions, bonuses and the like. There are no tax differences or benefits to the employer vis a vis the money purchase with a 401k option. The deductible contribution is limited to the 25% max of payroll on the firm's return.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.