{"id":1007,"date":"2025-04-17T17:48:54","date_gmt":"2025-04-17T17:48:54","guid":{"rendered":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/?post_type=articles&p=1007"},"modified":"2025-04-17T17:48:54","modified_gmt":"2025-04-17T17:48:54","slug":"what-is-a-profit-sharing-plan","status":"publish","type":"articles","link":"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/articles\/what-is-a-profit-sharing-plan\/","title":{"rendered":"What Is a Profit-Sharing Plan?"},"content":{"rendered":"
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David Wray, the president of the Plan Sponsor Council of America, once said that the purpose of profit-sharing plans is \u201cto generate goodwill and a feeling of partnership\u201d between employer and employee. Profit-sharing plans give employees a share in the profits of a company each year and can help fund their retirements.<\/p>\n

All the money contributed to a profit-sharing plan accumulates tax deferred, as it does with other defined-contribution retirement plans, but employer contributions are tax deductible only if the plan is defined as an elective deferral plan, which means that instead of accepting their profit shares as cash, employees defer the assets into retirement funds.<\/p>\n

Profit sharing is attractive to business owners because of its flexibility. Employers can choose how much to allot to employees each year based on the amount of revenue taken in. There is no required minimum. If the company has a bad year, the employer has the option of giving very little or nothing at all to employee accounts.<\/p>\n

Employees are usually enrolled automatically in profit sharing once they become eligible. Companies can choose eligibility requirements based on age and length of service. A company is allowed to contribute up to 25% of an employee\u2019s salary or $70,000 (whichever is less) in 2025 (up from $69,000 in 2024). This amount is indexed annually for inflation.<\/p>\n

Typically, companies set up vesting schedules that dictate how long workers must be employed in order to claim profit-sharing contributions when they move to another job or retire. Once employees are fully vested, they can take the entire amount contributed on their behalf and roll it over to an IRA or to a new employer\u2019s qualified retirement plan.<\/p>\n

If you participate in a profit-sharing plan, you may begin withdrawing funds after age 59\u00bd without incurring a 10% federal tax penalty. Withdrawals are taxed as ordinary income. Some plans may allow early withdrawals. Profit-sharing providers have greater flexibility when it comes to deciding the terms of early withdrawal than do administrators of other plans, such as 401(k)s. However, the trend has been to permit no early withdrawals.<\/p>\n

Generally, you must begin taking required minimum distributions after reaching age 73 (75 if age 73 is reached after December 31, 2032). You can elect to withdraw the assets as a lump sum and be taxed on the entire value of the fund or you can set up a minimum distribution schedule based on your life expectancy.<\/p>\n

Some companies offer a combination arrangement with both a profit-sharing plan and a 401(k). A conjoined plan allows employers to contribute as much or as little as they would like each year, while giving employees a way to supplement their retirement funds.<\/p>\n

If you are a business owner, profit sharing may be a way to attract high-caliber employees. It provides retirement funds for your employees yet still gives you the freedom to choose how much you wish to contribute each year.<\/p>\n

 <\/p>\n

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the \u00adpurpose of \u00adavoiding any \u00adfederal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the \u00adpurchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2025 Broadridge Financial Solutions, Inc.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"featured_media":1008,"template":"","meta":{"_acf_changed":false},"article-category":[19],"class_list":["post-1007","articles","type-articles","status-publish","has-post-thumbnail","hentry","article-category-retirement"],"acf":[],"yoast_head":"\nWhat Is a Profit-Sharing Plan? - New England Trust<\/title>\n<meta name=\"description\" content=\"In Evanston, IL, Robard Flaremoor offers Financial Planning Services & Financial Advice. \u2018Financial Services\u2019 from College Funding to Wealth Protection. \u2018Tax Services\u2019 include Tax Preparation, Tax Reduction, and Tax Management\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/staging8.dynaserverx.com\/newenglandtrust.com\/articles\/what-is-a-profit-sharing-plan\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Is a Profit-Sharing Plan? 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