Profit-Sharing Plans: Spreading the Wealth A profit-sharing plan (PSP) differs from most other DC plans in that the level of employer contributions is based on the business' profitability. In most cases, an employee who is enrolled in a profit-sharing plan receives a percentage of the profits based on the company's earnings. Those profit-based contributions, which are made to a separate account for each employee, are discretionary. In other words, it is up to the employer to decide how much to contribute. The contribution limit in 2010 is the lesser of 25% of your compensation or $49,000. The IRS will tax these benefits as part of your regular income only when you begin receiving distributions from the plan, typically after you retire or terminate employment. Some plans also allow employees to make contributions to their profit-sharing accounts, but only with after-tax dollars (that is, after taxes have been deducted from the paycheck).								> Home > Glossary > Support Questions & Answers   Profit sharing plans encourage hard work because:   The company can raid employee accounts if productivity declines.   Employer contributions are inversely proportional to employee sick days.   Employer contributions hinge on how well the company does.

		Profit Sharing Plan Highlights
		Employee contributions: Allowed by some plans, but only with after-tax dollars.
		Employer contributions: Up to employer's discretion. Can designate a fixed percentage of profits for plan, declare a contribution on a yearly basis, or tie contribution to corporate goals.
		Contribution limits: The lesser of 25% of compensation or $49,000 in 2010.
		Loans: Allowed.
		Early withdrawals: Allowed. Taxes apply on earnings and employer contributions. A 10% penalty applies to whole amount, except in IRS-approved situations.
		Worth knowing: Although technically an employer can suspend contributions during tough times, this is rare. Reason: The IRS will terminate a plan if it does not see evidence of "substantial and recurring contributions."

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> DC Plan Types: Rounding Up Retirement Plans > Money Purchase Plans: A Layaway Plan for Your Future > 401(k) Plans: Match, Point, and Set > 403(b) Plans: A Profitable Savings Plan for Nonprofit Employees > 457(b) Plans: Governing Retirement

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