Profit Sharing Plan

Profit Sharing Plans are one of the oldest and simplest retirement plans created under the Internal Revenue Code.

What is a Profit Sharing Plan?

A profit sharing plan is a qualified defined contribution plan established to be funded completely by discretionary employer contributions. The contributions deposited by the employer on the employees’ behalf are invested and grow on a tax deferred basis until the employee has a distributable event such as retirement or separation of service.

How much can an employer contribute to a profit sharing plan?

An employer is allowed to contribute and deduct up to 25 percent of the total eligible compensation of the plan participants. There are so many different ways in which the employer contribution can be allocated to the employee accounts. A few of these allocation formulas are new comparability, age-weighted, FICA integrated and pro rata. When establishing a plan, your third party administrator will assist you in determining the most advantageous formula for your plan.

How does an employee receive their money from the plan?

Employees can receive a distribution from the plan in a number of ways. Funds can be received via plan loans, hardship distributions, in-service distributions, required minimum distributions or distributions due to termination or retirement. Of course, the preferred distribution would be due to retirement. The provisions of the plan set forth by the employer will explain the options for receiving a distribution from the plan.

What is required to administer a profit sharing plan?

A profit sharing plan is required to have a written plan document. This document is drafted by your third party administrator and executed by the owner/employee. In addition to the plan document, the plan is required to be tested on an annual basis to insure the plan passes all the nondiscrimination rules set forth in the Internal Revenue Code. A Form 5500 must also be filed electronically with the Department of Labor on an annual basis. If the employer has more than 100 employees eligible to participate in the plan, an annual audit of the plan is also required. A copy of the annual audit completed by an independent auditor is required to be attached to the Form 5500 filing.

What are the first steps to getting a profit sharing plan started?

If you are interested in exploring a profit sharing plan, please contact Resource Benefits Administrators at (254) 776-6214 or (512) 342-1652 and a representative will assist you with your questions and the procedures needed to get your plan established.

3415 Greystone Drive, Suite 205
Austin, Texas 78731
(512) 342-1652
5400 Bosque Blvd, Suite 500
Waco, Texas 76710
(254) 776-6214

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