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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? Thanks, Bryan
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Bryan,

<<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.

Regards….Pixy
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