Renwanz Insurance & Financial Solutions, Carlsbad, CA
A profit sharing plan falls under IRS section 401. Both a profit sharing plan and 401k are forms of retirement plans that allow employees to make pre-tax contributions to an account where contributions and earnings are not taxed until they are pulled out during the distribution phase. It is important to note that a profit sharing plan does not have to be part of a retirement plan.
A profit sharing plan typically allows the employer to decide from year-to-year whether to contribute on behalf of participants. It would make sense that this decision follows the company's profitability for the previous year.
While there are variations of both types of retirement plans, there are many similarities between profit sharing plans and 401k's such as the ability to take out a loan or pull money out based on a narrow definition of hardship. Both can have non-elective employer contributions. An employer can offer both a profit sharing plan and a 401k.
You might find this link to an IRS publication helpful regarding profit sharing plans.
http://www.irs.gov/pub/irs-pdf/p4806.pdf
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A profit sharing plan typically allows the employer to decide from year-to-year whether to contribute on behalf of participants. It would make sense that this decision follows the company's profitability for the previous year.
While there are variations of both types of retirement plans, there are many similarities between profit sharing plans and 401k's such as the ability to take out a loan or pull money out based on a narrow definition of hardship. Both can have non-elective employer contributions. An employer can offer both a profit sharing plan and a 401k.
You might find this link to an IRS publication helpful regarding profit sharing plans.
http://www.irs.gov/pub/irs-pdf/p4806.pdf