Money Purchase Plan Calculator

While you typically don't contribute your own money to a Money Purchase Plan, there are important IRS limits that govern how much your employer can contribute on your behalf. These plans fall under the same overall umbrella as other defined contribution plans, like 401(k)s and profit-sharing plans.

The key number is the overall Section 415 limit, which dictates the maximum total contribution from all sources into a participant's account for the year.

It's crucial to understand that the $70,000 limit is per employee, not per plan. If your employer also offers a 401(k) plan, the total contributions to both your Money Purchase Plan and your 401(k) cannot exceed this cap.

At first glance, a Money Purchase Plan seems similar to a 401(k), as both are types of defined contribution plans. However, the mechanics of how money gets into the account are fundamentally different, creating distinct advantages and disadvantages. The primary distinction lies in the employer's contribution: one is mandatory, the other is discretionary.

Here is a side-by-side comparison of the key differences:

The mandatory nature of the Money Purchase Plan's funding makes it a more predictable and reliable savings vehicle. You know exactly what percentage your employer will contribute, which simplifies long-term planning and helps you calculate your retirement number with greater certainty.

The most significant benefit of a Money Purchase Plan is its "set it and forget it" nature for building wealth. Because the employer contribution is both mandatory and based on a percentage of your salary, your retirement savings grow automatically as your career progresses. This creates a powerful, disciplined savings engine that works for you in the background.

Consider this straightforward scenario:

An employee named Alex starts a job at age 35 with a $75,000 salary and a 10% Money Purchase Plan.

• Year 1 (Age 35): Alex's employer contributes $7,500 ($75,000 x 10%).
• Year 5 (Age 40): Assuming a 3% annual salary increase, Alex's salary is now ~$86,800. The employer contribution for that year is $8,680.
• Year 15 (Age 50): Alex's salary has grown to ~$116,800. The employer contribution is now $11,680 for the year.
• Year 25 (Age 60): With continued salary growth, Alex's salary is ~$157,200, and the annual contribution is $15,720.

Without Alex having to do anything other than perform well at work, the annual contribution has more than doubled over 25 years. When combined with investment returns, this consistent, escalating contribution can lead to a substantial balance. This automated discipline is a key reason why these plans can be so effective for reaching your retirement goal.

While your employer's contributions are guaranteed each year, your right to keep that money if you leave your job is determined by the plan's vesting schedule. "Vesting" means ownership. Until you are fully vested, you don't own 100% of the employer contributions and the earnings on them.

Money Purchase Plans typically use one of two types of vesting schedules:

1. Cliff Vesting: You gain 100% ownership of all employer contributions at once after a specific period of service, typically three years. If you leave before this milestone, you may forfeit the entire employer-funded balance.
2. Graded Vesting: You gain ownership gradually over several years. A common schedule gives you 20% ownership after two years of service, increasing by 20% each year until you are 100% vested after six years.

Once you are fully vested, the money is yours to keep, even if you change jobs. When you leave your employer, you generally have a few options for your vested balance:

• Roll it over to an IRA: This is a popular choice, giving you complete control over your investment options. You can use an IRA calculator to see how it might continue to grow.
• Roll it over to your new employer's plan: If your new job offers a 401(k) or similar plan that accepts rollovers.
• Leave it in the old plan: This may be an option, but you'll have less control and may be subject to the old plan's rules and fees.
• Cash it out: This is almost always a poor choice, as you will owe income taxes on the entire amount plus a 10% early withdrawal penalty if you are under 59½.

Understanding your vesting schedule is critical when making career decisions. Leaving a job just a few months before you become fully vested could mean walking away from tens of thousands of dollars.

The calculator projects the growth of your Money Purchase Plan year by year until you reach your desired retirement age. It uses a few core formulas to determine the final balance.

First, it projects your salary for each future year, as this is the basis for the employer's contribution.

Projected Salary = Current Annual Salary × (1 + Annual Salary Growth Rate) ^ Years of Employment

Next, it calculates the mandatory employer contribution for that year based on your projected salary.

Employer Contribution = Projected Salary × (Employer Contribution Rate / 100)

Finally, it calculates the account's growth for the year by adding the new contribution and applying the investment return to the total balance.

Year-End Balance = (Year-Start Balance + Employer Contribution) × (1 + Annual Investment Return)

Where:

• Current Annual Salary = The gross annual salary you earn today.
• Annual Salary Growth Rate = Your expected average yearly pay increase.
• Employer Contribution Rate = The fixed percentage your employer contributes to the plan.
• Year-Start Balance = The value of your account at the beginning of the year.
• Annual Investment Return = The average rate of return you expect on your plan's investments.

The calculator repeats this process for every year from your current age to your retirement age to arrive at the final projected balance.

A Money Purchase Plan can be a fantastic, low-effort way to build a retirement nest egg. However, it's often just one piece of a larger puzzle. To ensure a comfortable retirement, you need to see how it fits with your other savings and income sources.

• Supplement with Personal Savings: Since you can't typically contribute to a Money Purchase Plan, it's essential to save in other accounts. Contributing to a Traditional or Roth IRA can provide tax diversification and add significantly to your savings. An employee with a solid Money Purchase Plan might be in a great position to pursue Financial Independence, Retire Early (FIRE) by aggressively saving in other vehicles.
• Coordinate with Your Spouse: If you are married, factor in your spouse's retirement plan. If they have a 401(k) with a generous match, make sure you are contributing enough to capture it. If they have a 403(b) plan, understand its investment options and rules.
• Plan for Withdrawals: Your projected balance is just a number until you have a plan to turn it into income. Once you retire, you'll need a sustainable withdrawal strategy. Use a retirement withdrawal calculator to see how different rates affect how long your money will last.
• Factor in Social Security: Don't forget Social Security benefits. Your Money Purchase Plan is designed to work alongside this government benefit, not replace it. Understanding the best time to claim Social Security is a major retirement decision. Explore different scenarios to see how claiming at 62, 67, or 70 impacts your total income.

By viewing your Money Purchase Plan as the stable core of your retirement strategy, you can make smarter decisions about how to allocate your other savings and plan for a secure future.

What exactly is a money purchase plan?

A money purchase plan is a type of employer-sponsored, defined contribution retirement plan. The key feature is that the employer is required to contribute a fixed percentage of each eligible employee's salary to the plan each year, as specified in the plan's documents.

What is the maximum an employer can contribute to my money purchase plan in 2026?

For 2026, the total contribution to your account cannot exceed 100% of your compensation or the overall limit of $70,000, whichever is less. This limit includes all contributions made on your behalf to any other defined contribution plans from the same employer.

Is a money purchase plan better than a profit-sharing plan?

It depends on your preference for consistency versus potential upside. A money purchase plan offers predictable, mandatory contributions every year. A profit-sharing plan's contributions are discretionary and can be higher in good years for the company but could be zero in bad years. Many employees prefer the reliability of a money purchase plan.

Are withdrawals from a money purchase plan taxable?

Yes. Withdrawals are taxed as ordinary income in the year you receive them. Like 401(k)s and Traditional IRAs, these plans are also subject to Required Minimum Distributions (RMDs), which generally must begin at age 73.

Can I contribute my own money to a money purchase plan?

Typically, no. Most money purchase plans are designed to be funded exclusively by the employer. Unlike a 401(k), there is usually no mechanism for employee elective deferrals. Check your specific plan document for details.

What happens to my money purchase plan if I leave my job?

Your vested balance is yours to keep. You can typically roll the funds into an IRA or your new employer's retirement plan, or in some cases, leave it in the old plan. Cashing out is also an option but usually results in significant taxes and penalties.

Can I take a loan from my money purchase plan?

Whether you can take a loan depends on the specific rules set by your employer in the plan document. While some plans may permit loans, it is not a universal feature. Review your Summary Plan Description (SPD) or contact your plan administrator for details.

Now that you have a projection for your Money Purchase Plan, the next step is to see how it fits into your complete retirement income picture.

1. Estimate how long your total retirement savings might last with our How Long Will My Money Last Calculator.
2. Model different income scenarios and withdrawal strategies using the Retirement Income Calculator.
3. Determine if your overall savings are on track to meet your goals with the Retirement Needs Calculator.

Last updated: July 2026