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Profit Sharing Plan Frequently Asked Questions
The financial sphere is an important, albeit complex, sphere for many of us trying to navigate the waters. The following frequently asked questions will help you better understand pension and profit sharing plans:
What is a profit sharing plan? A profit sharing plan is a contribution plan, or retirement plan, in which the methods for profit are not clearly established. This allows the employer flexibility in when and how much is paid into the sharing plan pot. Often, with a profit sharing plan, the amount paid into each employee's benefit is determined by his or her base salary. These plans are overseen by financial professionals such as trustees and plan administrators. These funds are untaxed until you make withdrawals upon your retirement.
What are the benefits of a profit sharing plan? When it comes to profit sharing plans, the benefits are attractive to both the employer and employee. From the employer's perspective, all contributions are tax deductible. Additionally, there is the issue of vesting schedules. Vesting schedules are a period of time in which an employee becomes fully invested in the profit sharing plan. This ranges from company to company and helps with retention. From the employee's point of view, employer funded accounts are considered less risky. They can also be a sign of a company that is invested in each of their individual employees.
What is the difference between a pension and profit sharing plan? A pension plan has restrictions on the amount that can be contributed annually. Additionally, and perhaps most importantly, many pension plans are deducted from an employee's paycheck.
Pension plans are a type of retirement plan where an employer makes contributions toward invested funds for an employee's future benefit. This type of plan is usually tax exempt. When the employee retires, the fund is paid out to the employee. Profit sharing plans are systems where an employer shares part of its profits with employees. Compensation can include cash stocks, or bonds, payable at retirement or cashed in immediately. Pension, annuities, and profit sharing plans were developed to help employees have a source of money upon retirement. Other ways an employee can benefit from his or her company is to buy stock in the company, participate in a 401K, get salary bonuses and tantieme, and receive business incentives. Pension and profit sharing plans can help employees gain confidence in their employers and help to boost morale. Whether you're interested in annuities, money, retirement plan, profit sharing, or pension, your employer's pension and profit sharing plans can help. Contact your company's human resources department for more information on these and other plans offered by your employer. Many company pension plans, retirement accounts, and profit sharing agreement plans offer online fund advice and management, with financial advisor help 24 hours a day, seven days a week, to fit your busy schedule. You can speak to an advisor any time about your needs and get advice on the spot. Other sites let you sign up for newsletters, purchase stock, and get the latest financial advisory news in the industry pertaining to your specific needs.