From
Your Perspective:
Small business retirement plans
Profit-sharing plans
The most flexible of the two types of defined contribution
Keogh,
or HR 10,
plans is the
profit-sharing plan.
As with SEP IRAs, all contributions come from the employer. No employee contributions are allowed.
Since
this type of plan allows you to base contributions on profits, it can
work well for a small business whose profits fluctuate significantly
from year to year. If the business does well, you can contribute more,
and if business is slow you can contribute less or even skip a year.
As with any
qualified plan,
you need to include all eligible employees, and each must receive the
same percentage of salary in contributions. In 2008, the maximum
contribution is $46,000 or 25% of compensation, whichever is less.
While the flexibility to contribute or not can help a small business
keep up a plan through good times and bad, it can make it harder to
predict the amount of retirement income you as the beneficiary may be
able to count on.
