Why should companies be thinking about profit-sharing plans right now?
Profit-sharing plans serve as great employee retirement planning tools and as golden handcuffs in that they can have vesting restrictions that force employees to stay a certain period of time before they can obtain all their benefits. They also allow for retirement of key executives and open up spots for younger executives. Right now, the majority of profitable companies have either a profit-sharing plan or a pension plan in place. How can these plans serve as tax tools? Qualified plans ‘qualify’ for favorable tax treatment under the Internal Revenue Service Code. As long as they meet the requirements for maintaining such plans, employers and self-employed individuals can deduct contributions made to the plan. Employees aren’t immediately taxed on the contributions made on their behalf, but at retirement when distributions are made. Employers may make additional contributions on a pre-tax basis, to certain types of plans such as 401(k) plans and earnings on retirement plan funds accrue
