Profit-Sharing
Profit-sharing plans may be used by businesses of any size. Employer's contributions to these plans are discretionary. If contributions are made, the employer establishes a set formula for determining how they are divided among employees.
To set up a profit-sharing plan for your business, you may purchase a pre-approved plan or consult a benefit plan advisor.
| Profit-Sharing Plans for Small Businesses (.pdf file)
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- Can be set up by any employer
- Participant's retirement benefits based upon participant’s account balance
- Can include a feature allowing employees to contribute to their own retirement through salary deferrals, up to $17,0001 and an additional $5,5001 if age 50 or older
- The employer can decide each year whether and how much to contribute
- The maximum annual contributions are the lesser of 25% of an employee’s compensation or $50,0001 or more if catch-up contributions
- May exclude certain employees provided annual coverage tests are met
- More complex to set up and operate
- Annual return usually required
- Must usually satisfy annual nondiscrimination testing
- Greater design flexibility
- Plan may allow employees to take loans and hardship withdrawals
- May delay vesting of employer contributions
1Dollar limits are for 2012 and are subject to cost-of-living adjustments for future years. |
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Maintaining a plan on IRS.gov
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Correcting Plan Errors on IRS.gov
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ADDITIONAL RESOURCES
