Other business and personal planning needs can be accomplished inside a pension or profit-sharing plan
, such as funding buy-sell arrangements, deferring compensation, succession estate planning, and meeting life insurance needs.
Under the Code and regulations, amounts distributed by an employer's trust, such as the profit-sharing plan
in this case, are taxable to the distributee at FMV.
This article focuses on the three most popular types of tax-favored retirement plans for small firms: simplified employee pension plans, commonly called "SEPs;" savings incentive match plans for employees of small employers, referred to as "SIMPLE IRAs" and "SIMPLE 401(k) plans;" and qualified profit-sharing plans
Other firms consider net worth and dividends to be paid before contributions to the profit-sharing plan
can be made.
For example, 47 companies in our sample in 1988 had more than one ESOP and 71 had more than one profit-sharing plan
. The breakdown of number of plans by plan type is given in Exhibit 2.
Participation in a profit-sharing plan
typically must be offered to all employees age 21 or older who worked at least 1,000 hours in a previous year.
For 2007, there were 5,439 eligible employees in Baldor's profit-sharing plan
, and the average contribution was 3.5 weeks of pay.
However, a profit-sharing plan
will not be disqualified if the reason for not making contributions is lack of profits, as defined by the plan document.
A client's existing or newly created defined contribution profit-sharing plan
may be an ideal source of premium dollars for clients who need to fund a buy-sell arrangement but are hesitant to do so out of personal income or business cash flow.
Parker additionally said that employees have not yet received anything from an employee profit-sharing plan
and that was another reason for declining the bonus.
For example, Corporation 1 established a profit-sharing plan
A proprietor that has an earned income of $210,000 or more can achieve the maximum deductible plan contribution with a conventional profit-sharing plan
. Such an individual will be better off with a straight profit-sharing plan
because this delays the decision regarding a contribution amount for a particular year until the tax due date (including extensions) for the following year.