Profit Sharing Plans

Profit-sharing plans offer you flexibility, along with various contribution options designed to reward long-term employees with the potential for tax-deferred growth — including an optional loan provision.

It offers flexibility in determining annual contribution amounts. You decide how much you want to contribute each year. You can even skip years if you need to.

Here are some other details: 

Eligibility to Contribute 

Companies of any size and structure can offer this plan. Employee eligibility requirements are set when the plan is established. 

Maximum Annual Contribution

Employer: Up to the lesser of 25% of compensation or $66,000 in 2023. Profit sharing plans allow you a great deal of flexibility to vary the contribution rate each year. 

Tax-Deductible Contributions

Employers can deduct contributions from federal taxable income. 

Taxation of Earnings and Withdrawals

Contributions and earnings are taxed as ordinary income when withdrawn.

Types of Investments

Stocks, bonds, mutual funds and Advisory Products available through a Wells Fargo Advisors brokerage account. 

Withdrawal Penalties

10% IRS additional tax if withdrawn before age 59½ unless exception applies.

Exceptions:

• Separation of service in year turning age 55 or older
• Death
• Disability
• Substantially equal periodic payments over life expectancy
• Qualified military reservist
• Up to $5,000 for qualified adoption / birth expenses

Required Withdrawals

Beginning in tax year 2020, the age to start Required Minimum Distributions (RMDs) has been modified from age 70½ to age 72 (Does not affect participants who turned 70½ on or before 12/31/2019.) If you are still employed by the employer sponsoring this plan, RMDs may be delayed until the year of retirement (some exceptions apply).

Deadline to Set Up and Fund

• For taxable years 2020 and beyond, profit sharing plans may be set up by tax filing deadlines plus extensions.
• Contributions may be made up through the business tax filing date (plus extensions) 

Commissions and Fees

Vary by account and investments