A qualified pension and profit-sharing plan is an employee benefit plan that provides a way for you and your employees to save for retirement on a tax-deferred basis. Qualified plans allow for larger annual contributions and can be set up with a vesting schedule that rewards employees for longevity.
Farm Bureau can help you set up a qualified pension and profit-sharing plan to meet the needs of your business and your employees. You may establish a qualified plan as one of the following:
Profit-sharing plan — contributions are required only in the years your business makes a profit, but are subject to your discretion even if profits are declared.1
Money purchase plan — once set, the same level of contributions are required every year.1
Combination of these plans — contribution amounts are predetermined, but you also have the option to contribute a larger percentage of pay based on your company’s profitability.1
Qualified Plan Eligibility
Any sole proprietor, partnership or corporation may set up a qualified pension and profit-sharing plan, whether or not the business has any employees. You may exclude part-time employees based on hours of service, or full-time employees younger than age 21 or with less than a year of service.2
Qualified Plan Guidelines
The maximum deductible contribution allowed in these types of plans is 25 percent of an eligible employee’s compensation (up to a cap, contact an agent for current limit). The plan may be funded by a number of products ― a Farm Bureau agent can help you choose what’s right for your plan.
Participants may take distributions from the vested portion of the plan without IRS penalty should one of these events take place:3 separation from service; death; disability or attaining normal retirement age. Depending on the terms of the specific plan, employees who leave the company may choose to have eligible distributions taken as a lump sum or transferred directly4 to an IRA or other qualified plan.
Generally, distributions are considered ordinary income and are taxed. As with other retirement plans, there is a 10 percent IRS penalty, in addition to federal and state income tax, for withdrawing funds prior to age 59½,5 unless a premature distribution exception applies. Participants must begin receiving benefit payments by the latter of April 1 of the year following the year in which they each age 70½ or the year they retire.6
To find out if a qualified pension and profit-sharing plan is right for your business, find a Farm Bureau agent today.
1 More specialized forms of qualified retirement plans are available.
2 You may exclude employees with less than two years of service if your business has a 100 percent immediate vesting schedule.
3 Events may vary depending on the type of plan. Your policy and/or current prospectus will provide information on any additional charges or expenses. Normal retirement age is specified by the retirement plan.
4 For transfers that are not direct, a 20 percent federal income-tax withholding will apply.
5 Consult your agent and attorney or tax adviser before making an early withdrawal.
6 Employees who are more than 5 percent owners of the business must begin receiving distributions by April 1 of the year after the year in which they reach age 70½.