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Profit Sharing Plans are the most flexible qualified plan available. An employer can contribute and deduct up to 25% of the eligible employees' total compensation. The maximum amount that can be allocated to any one participant is the lesser of 100% of the participant's compensation or $51,000. The decision to make a contribution is made by the employer on an annual basis and it is not necessary to make a contribution each year.
Advantages
• Contributions are discretionary and can vary from year to year.
• Forfeitures from terminating employees can be reallocated to active plan participants.
In certain situations, a cross tested allocation method can produce the maximum 100%/$50,000 allocation to an older business owner with a lower allocation rate to non-owner employees.
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