Profit Sharing Plans
A profit sharing plan is a flexible solution available to business owners for rewarding and retaining employees.
Profit sharing plans can be used to fund employee retirement plans. Because they are the most flexible form of qualified retirement plans available, profit sharing plans can be a good solution for employers whose profit patterns vary from year to year.
Profit sharing plans:
- Allow discretionary contributions
- Can be used in combination with other qualified retirement plans
- Can include a 401(k) feature
Benefits
- For the employer:
- The full amount of the annual contribution (up to legal limits) is tax deductible on the employer's federal income tax return.
- The costs of maintaining the plan are tax deductible as business expenses.
- Company contributions to qualified plans can be made after the end of the taxable year up to the due date, including valid extensions, for the filing of the company's tax return.
- Enhances competitiveness in recruiting and retaining employees.
- Improves employee morale and productivity.
- Protects plan assets from creditors.
- For the employee:
- Contributions are not taxed as income until they are withdrawn.
- Earnings on all contributions accumulate tax deferred until they are withdrawn.
- Employee distributions may qualify for beneficial tax treatment.
To find out how much can be contributed, visit our plan limits page.
