A money purchase plan is a type of retirement savings plan where an employer contributes a fixed percentage or dollar amount to an employee's retirement account each year. This type of plan is considered a defined contribution plan, meaning that the contributions made by the employer are fixed and determined in advance.

Under a money purchase plan, the employer is required to make contributions to each eligible employee's account every year, regardless of the company's profits or losses. The contributions are typically based on a percentage of the employee's compensation, with a maximum annual limit set by the IRS.

The contributions made by the employer are tax-deductible, and the funds in the employee's retirement account grow tax-free until they are withdrawn at retirement. At that point, the withdrawals are taxed as ordinary income.

Unlike other types of retirement plans, such as a profit-sharing plan, the funds in a money purchase plan are owned by the employee immediately and cannot be forfeited by the employer. Additionally, the employee may be able to make contributions to their own account through salary deferrals, depending on the plan's design.

Money purchase plans are subject to a number of regulations and requirements under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Employers must follow specific rules related to contribution limits, vesting, distribution requirements, and other factors.