Learn about investing, trading, retirement, banking, personal finance and more.
Contributions are generally limited to 25% of employee compensation, but a small addition amount may be contributed for higher-income employees. Money Purchase plans and Profit Sharing plans are funded by employer contributions, and in general these contributions cannot exceed 25% of gross compensation.
For a self-employed person or a partner in a pass-through entity, the real percentage of contributions cannot exceed 20% of net profits because self-employment taxes will reduce the amount of profits considered compensation, as will the actual contribution.
There is a provision in both of these plans that allows the contributions to be increased slightly to “integrate” with Social Security, but this only applies to higher earners whose income exceeds the cap on “maximum considered compensation,” which is $265,000 in 2016.
This additional contribution cannot exceed 6% of the total compensation paid to all employees for the year. The idea behind this additional amount is that higher earners will be paid a much smaller percentage of their former salary by Social Security.
To learn more information about Social Security eligibility, see “Am I Eligible for Social Security Benefits?”
It is important to note that all contributions are made only by the employer in these plans, but they can be integrated with other retirement plans as long as the total contributions from either employees or employer do not exceed the allowable limits.
Be careful about integrating Money Purchase plans with other plans, however, since they cannot be combined with 401(k) deferral plans since ERISA in 1974. Contributions are currently deductible to employers and benefits are taxable to employees upon distribution.
Why Should I Have a 401(k)?
What are the Contribution Deadlines for My Money Purchase/Profit Plan?
Over-the-Counter securities transactions are done outside of formal exchanges, and the term could refer to penny stocks
The Simple Moving Average (SMA) is a line which plots the average closing prices of a security or index over a set number of days for trading
Correlation is a statistical measure of how two or more securities move in relation to each other, over a given time
Compounding refers to when your asset generates interest. Put simply, it’s when your earnings generate additional earnings
Swing trading is active trading that is not frequent enough to be categorized as day-trading
“Pari-passu” is a Latin phrase meaning “equal footing,” typically in reference to treatment of beneficiaries when assets are distributed
A rate swap is an over-the-counter contract between two institutions to trade the cash flows on two principal amounts
Commodity pools are like the REITs of the commodity world, and some of them can be categorized as hedge funds or MFAs
In order to be eligible for an HSA, you must be enrolled in a high deductible health plan (HDHP) that is HSA-eligible
The Death Cross is a chart pattern indicating when a security’s short-term moving average crosses underneath its long-term counterpart