Retirement Planning Profit Sharing Plan In this plan, the employer will contribute in relation to the current compensation of the employees. The employer will decide the amount of contribution to the plan. Additionally, the employer will make a decision of whether to contribute to the plan every year. Employees can join and participate in this plan during their employment or after a period of employment (two or three years). In this plan, the employees will share the company profits. As such, they will need to establish a profit sharing scheme for the same.
The company will practice to decide the profits among the employees according to the sharing rate. If you find the above plan not good enough for your company, I recommend that you consider stock option plan. Stock option plan will give the employees the opportunity to purchase the company stocks at a given price. The plan will have not put component and will not trade for exchange. The plan will be an incentive plan that will provide the employees with stocks where they will earn rewards. Simplified Employee Pension (SEP) Plan This is an individual account for retirement.
The employer will contribute on behalf of the employees. The plan has tax advantage in that the contributions are treated as business expenses and therefore the company deducts them together with the company expenses. As such, the employer will not pay tax on the contributions. Additionally, the company will integrate them together with the social security contributions. There are no requirements for minimum contributions and therefore the employer will contribute any amount. SEP plan allows contributions in form of cheque or cash; it does not allow bonds or stocks.
The contributions that Ames will contribute will be tax deductible. The company can contribute up to 25 percent of the employee’s compensation but is should not exceed $40,000. The employer will contribute the employees first $200,000. The employer’s contributions will only be eligible to the employees only. SEP plan will not allow employers to make annual contributions. Instead, the employer will make investments in this plan. The investments include bonds, shares, stocks and mutual funds. The earnings realized from the contributions are subject to tax and therefore they are taxed until their withdrawal.
All the company employees qualify for this plan. There are strict regulations for the withdrawal of funds from this pan. Any person holding this plan must be 59 and a half years old and above. Any participant below this age cannot withdraw money from the plan. If you find the above plan not good enough for your company, I recommend that you consider simple incentive match plan. The employer and the employees for the benefit of the employees set up this plan.
The contributions that the employer makes are tax deductible and the contributions are inform of non-elective contributions or matching contributions. Employees are allowed to make salary deferral contributions to this plan. It is easy to set up, the plan is tax effective, has low administrative costs and ensures maximum benefits to the employees. This a good retirement planning plans. The employer will contribute 2% of the employees' compensation without considering the employees contributions.