As of 2020, what is the maximum contribution an employer can make to a money purchase pension plan account?

The correct answer reflects the 2020 IRS limits for contributions to a money purchase pension plan, which is set at a maximum of 100% of an employee’s compensation, with an overall cap of $57,000 for the plan year. This means that employers can contribute the total amount of an employee’s earnings for that year, provided it does not exceed this established cap.

Money purchase pension plans are defined contribution plans that require fixed contributions from the employer. Therefore, the ability to contribute up to 100% of compensation is a key feature, allowing employers flexibility in funding the retirement plan based on their workforce compensation levels.

The contribution limits are intended to promote retirement savings while ensuring that contributions remain within reasonable bounds for individuals earning higher salaries. The specified cap ensures that high earners do not disproportionately benefit from the tax-deferral advantages offered by these plans.

Understanding these contribution limits is essential for managing retirement plans effectively and ensuring compliance with IRS regulations.