Profit-sharing plans are available to a variety of business structures of all sizes. This is an employer only funded plan that allows a maximum contribution of 25% of eligible payroll for incorporated businesses or 20% of adjusted net profits for unincorporated businesses not to exceed $53,000 for 2016. All contributions are tax deductible as a business expense.
Contributions to a profit-sharing plan are completely discretionary. In fact, they don’t even have to bear any relationship to profits, and may be skipped altogether in a given plan year1. A traditional profit-sharing plan offers two common allocation methods; pro-rata (equal percentage for everyone) or integrated with Social Security. Social Security Integration uses a contribution formula that takes Social Security payments into account. Using such a formula allows higher paid employees to receive a higher contribution percentage. So if your goal is to maximize retirement plan benefits for key employees such as yourself, Social Security integration can be a strong plus. In addition, the plan can be designed to determine how the plan is funded, who is eligible to participate and when employees are vested in the plan. In addition, loans and hardship withdrawals may be permitted.2 For even more flexible employer contribution options, access our Retirement Plans for Small Businesses Employer Guide to learn more about the added flexibility a non-traditional profit-sharing plan may offer.
Profit-sharing plans involve moderate administration and paperwork and require annual government reporting and compliance testing. New plans must be established by the last day of the plan year, generally, December 31 for calendar year-end plans.
Call your financial advisor today to explore if a profit-sharing plan is right for you. To learn more access Retirement Plans for Small Businesses Employer Guide.
1Funding is required at least once every three years.
2Permitted in the Oppenheimer Profit Sharing Non-Trusteed Plans.