Profit Sharing

A profit sharing plan allows a business owner to contribute as much as 25% of each eligible employee’s compensation up to the dollar limit imposed by the IRS. For 2013, this amount is $51,000.

The IRS allows the contribution to be allocated under one of four different methods: the traditional method which contributes the same percent to all, the integrated method which allows the contribution to be integrated with Social Security, the age weighted method which provides higher contributions to older higher paid employees or the new comparability method which allows the employer to separate the employees into non-discriminatory groups and allocate different percentages to each group.

The following chart compares the four contribution methods:

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