What is A Defined Contribution Plan?
In a defined contribution plan, the amount of the final benefit is unknown, while the annual rate of contribution by the employer is known.  The amount of an individual’s retirement benefit depends on the contributions made and the investment earnings received on those contributions.  The types of defined contribution plans include Money Purchase Pension Plans, Profit Sharing Plans, and Section 401(k) Plans, Simplified Employee Plans (SEPs) and SIMPLE plans.  Each type of plan offers its own unique features and advantages, and the choice of which type to establish depends on the employers goals and employee population.  We will be happy to consult with you in this matter.

Flexible and Discretionary
Profit Sharing Plans, despite their name, do not require that the employer have a profit; or if they do they are not required to contribute. Profit Sharing Plans are merely flexible, discretionary plans. The employer may choose whether or not to contribute for any given year (this decision does not have to be made before the business tax return due date) and the plan need not be funded until the due date including extensions.

“Cross-tested” Profit Sharing Plans (age-weighted and new comparability plans are the most common) often allow the business owner to tailor the plan contributions to his needs while remaining in compliance with all current regulations.

401(k) - Employee Funded
Section 401(k) Plans have become quite popular over the last few decades. The employees fund their own retirement benefits and the company may choose to contribute for the employees’ behalf as well. Originally unwieldy for small employers due to unique non-discrimination rules the implementation of “safe harbor” plans have made 401(k) Plans much more popular for small businesses by removing the need for the non-discrimination testing.

Individuals may defer out of their gross income up to $20,500 in 2022 and $22,500 in 2023, not to exceed 100% of income. Amounts deferred are not currently subject to federal or state income taxes (however, they are subject to Social Security tax). Individuals age 50 or older by the end of the year may defer up to an additional $6,500 in 2022 and $7,500 in 2023. In addition there can be additional matching or profit sharing contributions made by the employer. Please call for more details…