Profit Sharing Plans
sharing plans are highly popular, and for good reason. They
offer the most flexibility when it comes to making
contributions. Company contributions may be determined by a
formula written into your plan or at at the discretion of your board
of directors or other governing body. For Example:
You can provide that yearly
contributions will equal a certain percentage
profits. If the company makes no profit, no
contribution is required that year.
You can provide that
contributions be made only if profits exceed
You can let your board of
directors review the company's financial
each year and make plan contributions at it's discretion.
Low profits don't mean you can't make
a contribution. A profit sharing plan can include an option
allowing your company to make contributions even if the company
doesn't produce a profit.
sharing contributions are generally allocated to employees according
to compensation. You may contribute up to 25% of an employees
annual compensation or $30,000 (whichever is less). However,
the amount you may deduct on your company's income tax return is
limited to 15% of the total yearly compensation paid to all
employees participating in the plan. Most employers limit
contributions to 15% of compensation.
that the tax law places a limit of $ 160,000 on compensation that
may be considered in determining contributions to a retirement
plan. Thus, the dollar limit on deductible contributions to a
profit sharing plan is, in effect, only $ 24000.
amount of benefits an employee will receive from a profit sharing
plan depends on several factors. First and foremost is the
company's profitability. Since the company contributions are dependent
on profitability, a profit sharing plan can be a strong incentive
for employees to perform well.
other factors include the number of years an employee has participated
in the plan, the plan's investment performance, and the amounts
fortified by employees who leave before becoming entitled to the
full value of their accounts.
Sharing Plan Examples
More Questions & Answers
can you be sure what is the best plan for your company? Who
should design your plan? How do you go about implementing a
plan? What about securing IRS approval?
We can answer these and many other
questions you may have about employee benefit planning. We
welcome the opportunity to help you reach your goals.
For more information please feel free
to browse around our web site. We are always happy to answer
any questions, or to schedule a consultation contact:
Email Us or call us at 847-215-8630.