Profit Sharing Plan
A Defined Contribution plan under which the employer may determine, annually, how much will be contributed to the plan. The plan details a formula for allocating to each participant a portion of each annual contribution. A profit sharing plan may include a 401(k) feature.
Advantages:
- Gives employers flexibility in plan design
- Provides benefits to a mix of rank-and-file employees and owner/managers
- Contributions and earnings generally are not taxed until they are distributed
- The employer can choose when and how much to contribute
- Allows participants to take their benefits with them when they leave the company, easing administrative responsibilities