Profit Sharing & Money Purchase Pension Plans
Profit Sharing Plan
Money Purchase Pension Plan
Profit Sharing
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
Profit Sharing Plan 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- Contributions are not taxed as income until they are withdrawn.
- Earnings on all contributions accumulate tax deferred until they are withdrawn.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.
Money Purchase Pension Plan
A money purchase pension plan can be a retirement solution for businesses with a clearly defined cash flow.
With this plan, the employer contributes a fixed percentage of each participant's compensation regardless of profits.
Money Purchase Pension Plan Benefits
- For the employer:
- Employer contributions are tax deductible.
- Different vesting schedules are available. As a result, employers can offset future contributions with forfeited balances.
- For the employee:
- Contributions and plan earnings are tax deferred.
- The contribution percentage, as stated in the adoption agreement, is a required contribution each year.
- Employees can withdraw from their account for special purposes.
To find out how much can be contributed, visit our plan limits page.
