What is an Employer Plan (401K, Money Purchase Plan, etc.)? | IRS Definition of an Employer Plan (401K, Money Purchase Plan, etc.)

An employer plan is an employer-provided type of retirement, pension, or contribution plan. Many employers provide these types of benefits to employees as a way of increasing their total benefits package, and keeping their employees happy and financially stable. An employer plan can range from a traditional 401k to a money purchase plan. Either way, it’s intended as an investment vehicle for the employee.

Under some employer plans, the employer will match contributions, pay fees, or provide other services to the employee. The employee will either choose how much they want to pay in, or have a fixed contribution that they need to pay in. Regardless, the ultimate goal is that the employee will make back more than they have invested in the employer plan.

Employees will usually be able to withdraw money starting at their retirement age (or slightly earlier) from their employer plan. If they wait until retirement, they are able to take these dollars out tax-free. Otherwise, they may need to pay income taxes.