What is a profit sharing retirement plan?
This is a retirement plan where a company uses its profits to fund a qualified retirement plan for its employees. Unfortunately, in this kind of plan an employer does not have to contribute to the plan, even when there are profits to share. On the other hand, a company may well decide to contribute to your plan even if it has not made a profit that year. Yes, you heard it right – in a profit-sharing plan, the employer has the discretion to contribute or not, regardless of profitability. An employer can contribute absolutely nothing; and an employer feeling generous is limited in how much he or she can contribute. The contribution formula is based on compensation and as of the year 2001 cannot be more than 15 percent of your pay, up to a maximum of $170,000 of income. So even if you make $200,000 a year, the maximum your employer could contribute to your profit-sharing plan (for the year 2001) would be $25,000 – 15 percent of $170,000. Please note that in the year 2002 the maximum contr
