What is a profit-sharing contribution to a 401(k)?
Some 401(k) plans have provisions that allow for a non-elective or “profit sharing” contribution from the employer, as well as the more common matching contributions that are based on the amounts contributed to the plan by employees. Profit-sharing contributions are allocated to the accounts of all the eligible employees, whether or not they defer any of their compensation to contribute to the plan. Matching contributions are allocated only to those participants who defer into the plan. The profit sharing contribution is based upon your employer’s corporate profits for the year, and is normally made at the end of the calendar year or after your company’s fiscal year end. Although this may be a required non-elective contribution, because it is based on your company’s profits your employer may use its discretion to determine the percentage that will be paid based on its profits. This amount may be deterimed to be 0% if your company has not expereinced a profitable year.
