Plan Types

 

Profit Sharing Plans are a great option for companies wishing to make tax-deductible contributions on behalf of owners and employees. They can be a stand-alone plan or part of a 401(k) plan.

 

Overview of Profit Sharing

Profit Sharing Plans are a good alternative to Simplified Employee Pensions (SEPs) and provide the following features.
 
  • Can be Stand-Alone Profit Sharing Plan
  • Optionally Included as Part of a 401(k) Plan
  • Contributions Are Generally Discretionary
  • Maximum Employee Contribution Allocation of $56,000
  • Tax Deduction Limit of 25% of Plan Compensation
  • Flexible Options for Allocating Contributions to Employees
  • Contributions Can Be Subject to a Vesting Schedule
  • Investments Generally Pooled and Managed by Your Advisor
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Advanced Plan Design: New Comparability

New Comparability Plans are a popular plan design that maximize owner and key employee contributions and lower plan funding costs.

 
OVERVIEW OF NEW COMPARABILITY
  • Maximize Contributions for Owners / Key Employees
  • Contributions are Discretionary
  • Different Contribution Rates for Employee Groups
  • Flexible Design to Meet Employer Goals
  • Can be Combined with a 401(k) Plan
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GOOD CANDIDATES
  • Owners Seeking Maximum Contributions
  • Physicians and Medical Practices
  • Dental Practices and Orthodontists
  • Law Firms
  • Architectural Firms
  • Other Professional Companies
  •  
 

New Comparability Example

Below is an example of a typical New Comparability Plan compared to a traditional, salary proportional profit sharing plan. Many different plan designs are possible as employees are classified in groups and different contribution amounts are funded to each group.
 

DEMOGRAPHICS

CONTRIBUTIONS
Employee

Age

Salary

Traditional Profit Sharing

New Comparability
Owner 1

53

$285,000

$55,253

$57,000
Owner 2

47

$150,000

$29,600

$57,000
Owner Total

$435,000

$84,853

$114,000
Employee 1

40

$52,000

$10,261

$2,939
Employee 2

35

$48,000

$9,472

$2,713
Employee 3

30

$40,000

$7,893

$2,261
Employee 4

28

$35,000

$6,906

$1,978
Employee 5

25

$32,000

$6,315

$1,809
Employee Total

$207,000

$40,847

$11,700
Grand Total

$642,000

$125,700

$125,700