Profit Sharing Plan Highlights

Profit Sharing Plans

Plan Highlights


Profit Sharing Plan Highlights

A profit sharing plan is a type of plan that gives employers flexibility in designing key features. It allows the employer to choose how much to contribute to the plan (out of profits or otherwise) each year, including making no contribution for a year. Employers start a profit sharing plan for additional reasons:

  • A well-designed profit sharing plan can help attract and keep talented employees.
  • A profit sharing plan benefits a mix of rank-and-file employees and owners/managers.
  • The money contributed may grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • Contributions and earnings generally are not taxed by the Federal Government or by most state governments until they are distributed.
  • A profit sharing plan may allow participants to take their benefits with them when they leave the company, easing administrative responsibilities.

Pros and cons

  • Flexibile contributions – contributions are strictly discretionary
  • Good plan if cash flow is an issue
  • Administrative costs may be higher than under more basic arrangements (SEP or SIMPLE IRA plans)
  • Need to test that benefits do not discriminate in favor of the highly compensated employees.

Who contributes

Employer contributions only. If a salary deferral feature is added to a profit-sharing plan, it is a “401(k) plan.”

Contribution limits

The lesser of 25% of compensation or $55,000 (for 2018; $54,000 for 2017, subject to cost-of-living adjustments for later years).

Filing requirements

Annual filing of a Form 5500-series return/report is required. Participant disclosures are also required.

Participant loans


In-service withdrawals

Yes, but subject to possible 10% additional tax if under age 59-1/2 and no other exception applies.


Find out if a Profit Sharing Plan makes sense for your business,
contact Vermillion Financial Advisors today.

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