What are Profit Sharing Plans   A Profit-Sharing Plan is for sharing profits with the firm's employees. Employers are neither restricted to making contributions only out of net profits nor to having a definite formula for calculating the profits it intends to share. Funding is not required in any year.   A Profit-Sharing Plan must set out a definite formula allocating both the contributions and distributions for each participant. In addition, distribution formulas must itemize the distribution terms, such as age, number of years in the Plan, etc.   Contributions to profit sharing plans are discretionary and may vary from year to year. Generally, each employee receives the same contribution, unless the plan is designed to take advantage of permitted disparity rules. Contributions are usually based on business profits, but according to the IRS rules, you can also contribute to your plan based on compensation. If you make contributions based on compensation, the Entrust plan for Owner only plus spouse and partner plan is set up so that you can make non-cash contributions, such as stock or Treasury bonds.   The maximum deductible contribution that can be made to a profit sharing plan after 2001 is 25 percent of eligible compensation. Eligible compensation is all the compensation that an employer pays to eligible plan participants during the employer's tax year. The employer takes the deduction for this contribution. The employer's contribution to each employee's account is not considered taxable income to the employees for the contribution year.   After 2001, self-employed person may contribute up to 25% of gross self-employed income to an annual limit of $40,000. The annual compensation limit for 2002 contribution is $200,000. Contributions are tax-deductible and earnings accumulate on a tax-deferred basis.   Profit Sharing Plan Contribution/Deduction Limit The employer deduction limit for profit sharing plans has been increased from 15% to 25%. This allows substantially increased annual contributions for employers that use or allow multiple contribution options, such as profit sharing, matching and after-tax contributions.   Select an Administrator and Open an Account     Click here for books and CDs webmaster@ekeogh.com ekeogh is brought to you by Entrust Administration 1.800.392.9653