Whats the difference between a 401(k) plan and my companys profit sharing plan?
A “profit sharing plan” is a type of retirement plan. It allows an employer to share profits of the company with employees by contributing a percentage of the company’s annual profits to the plan. The amount of the contribution can change each year, or may not be made at all, depending on the company’s circumstances.
A “profit sharing plan” is a type of retirement plan. It allows an employer to share profits of the company with employees by contributing a percentage of the company’s annual profits to the plan. The amount of the contribution can change each year, or may not be made at all, depending on the company’s circumstances. A 401(k) plan is a feature of a profit sharing plan or a stock bonus plan. Unlike a profit sharing plan, however, employees can contribute a percentage of their own salaries (up to certain limits) to the plan for retirement savings. 401(k)s also allow employers to contribute money to its employees’ accounts in the form of “company match” contributions, usually as an incentive to get employees to participate in the plan. Current income taxes are deferred on both employer and employee contributions and any investment earnings, until the money is withdrawn from the plan. The maximum amount that you can contribute to a 401(k) in 2010 is $16,500 ($22,000 if you will be age 50 o
