Profit Sharing Plan
Profit sharing can be its own plan, or it can include 401(k) contributions within the same plan. Profit sharing is an employer contribution that is allocated to plan participants. It does not require the company to have a profit to allocate. The contribution is discretionary.
The profit sharing contribution can be allocated to employees different ways, the most common being: salary proportionate, integrated with social security, cross-tested. Participants earn rights to the profit sharing monies allocated to their retirement plan accounts according to a vesting schedule the company elects and is specified in the retirement plan document.
The Benefit
Enables an employer to provide retirement benefit to employees tax free. The company can claim a deduction on its return for the total profit sharing contribution. The employee does not pay taxes on the profit sharing contribution received until a future date when the monies are received as a cash withdrawal to him. A profit sharing plan can also help attract and retain talented employees.
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Profit sharing can be salary proportionate or integrated with Social Security. See examples here.
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See example here for the full four step calculation details for a plan integrated with Social Security.
Set Up This Plan
To set up this plan for your organization, complete our company questionnaire.