Business Retirement Accounts » Money Purchase Pension and Profit Sharing Plans

2008 Contribution Limits

Contributions into a PSP or MPPP are limited to the lesser of 25% of eligible compensation or $46,000 for 2008, adjusted annually. Contributions for self-employed individuals require a special calculation to determine earned income and take into consideration half of the employers self-employment tax liability.

Internal Revenue Code (IRC) Section 415 does apply to contribution calculations up to a maximum salary cap of $230,000. PSP contributions are discretionary but cannot be discriminatory. If a contribution is paid, all eligible employees must receive the benefit.

Paired plans, a combination of both plans, allow a maximum of 25% of eligible compensation or $46,000 between the two plan types.

Contributions for self-employed individuals require a special calculation to determine earned income and take into consideration half of the employers self-employment tax liability.

Deadline

To deduct a contribution to a profit-sharing plan or money purchase pension plan for any particular year, the employer must make the contribution by the employer's tax filing deadline plus extensions. Money purchase contributions must be made by 8-1/2 months after the end of the plan year if the employer has an extension.