How to Get the Right Pension Funded Business Startup (part 2 of 2)
Money Purchase Plan
The maximum employer contribution requirement for this type of pension plan is $30,000 or 25% of your salary, whichever comes first. Again, employers are solely responsible for making contributions but as there’s no model used for this type of setup, it’s entirely up to them to determine the size and date of their contributions as well as other conditions for the pension. In most cases, benefits are only distributed when employees reach retirement age, but your employer could allow participant loans.
To qualify for money purchase plans, you must be at least 21 years old and have worked for your current company for at least one thousand hours in the previous year.
This salary reduction plan may have slightly complicated terms set for contributions and withdrawals, but if you want a pension plan that starts and pays immediately with minimum paperwork, a 401(k) is exactly what you need.
Contributions will be mainly shouldered by the employee, but there are situations where the contributions would be matched or even completely taken over by your employer. Maximum contribution for the employee is an indexed amount of $6,000 but they can also contribute as little as you want. Employers, on the other hand, have to hand over matching contributions or if no that then at least equivalent to at last 2% of your salary.
To qualify for a 401(k), you must have earned a minimum amount of $5,000 in the previous two years. Withdrawals, on the other hand, can be made whenever you want. There will be penalties, however, if you make an instant withdrawal within the first two years of your pension plan (you’ll have to pay a whopping 25% penalty in fact!). Subsequent withdrawals made when you haven’t reached 59 ½ years of age will be subjected to 10% penalty instead.
Now that you know your best options, make sure you choose the right foundation for your pension-funded business startup plans.