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A Profit Sharing Plan is a type of employer sponsored retirement account in which tax deductible contributions are made solely by the business owner. The business owner has the flexibility each year to contribute and deduct between 0% to 25% of total compensation paid to all eligible employees. Several allocation methods are available:
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Same percentage of compensation for each participant; |
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Permitted disparity (Social Security integration); and |
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Age-weighted. |
Like the Money Purchase Pension Plan, the Profit Sharing Plan can generally be implemented and administered with minimal setup and annual administrative fees. The business owner is considered the "plan sponsor" and will typically be named as the “trustee” of the plan. In either case the employer is responsible for keeping records to reflect each employee‘s date of eligibility, applicable vesting schedule, outstanding loan balances, and ownership share in the assets of the plan. Additionally, each year the business owner is responsible for ensuring that the plan remains compliant with current laws and for filing an annual return/report regarding the plan’s financial condition, investments, and operations. The annual reporting requirement is generally satisfied by filing Form 5500 Annual Return/Report of Employee Benefit Plan, along with any required attachments. Note: Annual reporting requirements are waived for plans with no common-law employees, other than a spouse, where total plan assets are less than $100,000.
Note: For self-employed individuals, contributions can be made from net earnings in the trade or business for which the plan was established, not from income derived from personal investments.
Other types of Qualified Business Retirement Plans include Money Purchase Pension Plans, 401(k)s and Defined Benefit Plans. Contact our Customer Service Department to discuss eligibility requirements as well as other information about qualified retirement plans.
Eligibility
Contribution
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