Profit-Sharing Plan
If you like the features of a SEP; but want more control over your
plan’s eligibility and vesting, a Profit-sharing plan may be
a better option. Although a Profit-sharing plan offers you control,
it entails additional administrative responsibilities.
Profit-sharing plans are suitable for businesses with unpredictable
earnings as well as those with part-time employees and/or high employee
turnover.
Key Benefits:
- Annual contribution percentage may vary; contributions may even
be skipped altogether. Employer is allowed to make a tax-deductible
contribution of 25% of the compensation paid during the year to
the participants under the plan. The overall maximum contribution
per eligible employee is 100% of compensation not to exceed $49,000
based on the first $245,000 of compensation in 2009.
- Par-time and seasonal workers may possibly be excluded on the
basis of eligibility requirements
- Availability of vesting schedules
- Availability f loans and hardship withdrawals
- Permits Social Security Integration
Possible Drawbacks:
- In general, if the employer chooses to make a contribution to
the plan. The same percentage of compensation must be contributed
for all participants
- Involves moderate administration and is subject to ERISA
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