One of the most popular employer-sponsored retirement plans, a profit sharing plan can provide your employees with a powerful and appreciated benefit. Because of its funding flexibility, this plan is most beneficial if you are an employer whose profits or financial ability to contribute to a plan varies each year. As the name implies, your employer contributions are generally based on a specific formula relating to your business's profits.
| Your preferred investment option: |
|
Ethical Wrap Program |
Download Important Information |
Wrap Brochure |
Minimum to open |
No minimum (so long as employer meets standard minimum with other accounts) |
Download Qualified Plan Application |
Application (New plan? Complete worksheet) |
| Contributions |
Eligibility |
Ideal for a variety of business types |
Contribution limit |
- Varies depending on profit sharing plan. A special formula may allow you to make higher contributions for highly paid employees
- Contribute up to 25% of compensation or $46,000 for year 2008 ($49,000 for year 2009); whichever is less. (eligible compensation cannot exceed $230,000 for year 2008 and $245,000 for year 2009)
|
Funding requirements |
Pretax employee contributions not allowed. Employer contributions are discretionary but IRS does require “recurring and substantial” contributions or it may consider your plan terminated. |
Deadline |
Plan must be established by December 31st. Contributions must be made by the business's tax-filing deadline plus extensions. |
| Annual Tax Reporting |
Annual tax-filing IRS Form 5500 required |
| Vesting |
Varies-you can establish a vesting schedule of up to seven years |
| Tax Advantages |
Contributions |
Tax-deductible (Employer contributions are tax-deductible to your business up to 25% of total payroll compensation) |
Earnings |
Grow tax-deferred (until withdrawn) |
| Withdrawals |
Taxable |
| Withdrawals |
Withdrawals after age 59½ |
Withdrawals are taxable income in the year received. |
Withdrawals before age 59½ |
Cannot take withdrawals from the plan until a "trigger" event occurs such as turning age 59½, disability, and/or plan termination (certain exceptions may apply such as death or disability). A 10% penalty and 20% mandatory federal tax withholding generally apply to nonqualified withdrawals. |
Required withdrawals at age 70½ |
You must take out what are known as required minimum distributions from your plan when you reach age 70½. |
| Key Strengths |
Key Tradeoffs |
|
- May allow “in-service” withdrawals (subject to penalty and taxes)
- May allow participant loans
- Flexible employer contributions
- Earnings grow tax deferred until withdrawn
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- Subject to detailed requirements
- Requires services of a third party administrator
- Annual tax filing Form 5500
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* This information is not intended as tax advice. For more complete guidance on your particular financial situation, please consult your tax advisor or speak to an Azzad investment advisor at 888-862-9923. Please make sure to read the Azzad mutual funds' prospectus or Ethical Wrap Program's brochure before you invest. The wrap minimum applies after meeting standard minimum with other accounts.
