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Learning, Sharing, and Teaching => Investor Alley => Topic started by: JJ- on May 12, 2015, 01:02:10 PM

Title: Profit sharing plans?
Post by: JJ- on May 12, 2015, 01:02:10 PM
Good day,

I'm looking for some information on profit sharing plans. DW just took a new job and they offer a PSP for part of their benefits package. Their servicer is american funds. The PSP looks to be a special type of 401k, but it looks like the contribution limit is an annual max of either the participant's salary or $52k (instead of $17.5k for the participant)? Are there any other differences I should be aware of? General or specific information is appreciated.
Title: Re: Profit sharing plans?
Post by: iamlindoro on May 12, 2015, 07:41:02 PM
It's not a special kind of 401k, it is a standard 401k.  Profit sharing contributions are contributed by the employer to the 401k, and are in addition to your own contributions.  They do not count towards the employee's own annual contribution limit.  Also, your numbers are slightly off.  The contribution limits are:

18K (employee)
45K (employer)

for a total of 53K per year as of 2015 (more if you are over 50 and can take advantage of catch up contributions).
Title: Re: Profit sharing plans?
Post by: JJ- on May 13, 2015, 10:12:09 AM
Thanks lindoro
Title: Re: Profit sharing plans?
Post by: tdogz on May 13, 2015, 10:37:05 AM
It is also important to note how your specific PSP is operating. My employer's plan would match 50% of your contribution, up to 10%. So if I contributed 10%, then my employer contributed an additional 5%. However, they don't make the matching contributions at the same time as my payroll contributions. They contribute the whole year's employer match as a lump sum at EOY. And if you are no longer working for the company on 12/31, then your matching contributions for that year would instead go into a pot to be distributed among the remaining employees.
Also, regardless of whether your contributions are pre-tax or Roth, employer matches must be a pre-tax contribution since the company gets a tax break on those funds.