Profit Sharing Plans


The profit sharing plan is one of the most flexible qualified plans available. Company
contributions to a profit sharing plan are usually made on a discretionary basis. Each
year the employer decides the amount, if any, to be contributed to the plan. For tax
deduction purposes, the company contribution cannot exceed 25% of the total
compensation of all eligible employees.

The contribution is usually allocated to employees in proportion to compensation and
may be integrated with Social Security which results in larger contributions for higher
paid employees.

Age-Weighted Profit Sharing Plans:  Profit sharing plans may also use an age-weighted
allocation formula that takes into account each employee's age and compensation. This
formula results in a significantly larger allocation of the contribution to employees who
are closer to retirement age. Age-weighted profit sharing plans combine the flexibility of
a profit sharing plan with the ability of a pension plan to skew benefits in favor of older
employees.
 
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