Defined Contribution Plans
With these plans, the contribution is defined and limited. The account value at retirement is unknown.
- Combines the benefits of a qualified retirement plan with the simplicity of an IRA. Employers may make discretionary, tax-deductible contributions of up to 25% of eligible employees' compensation, and the funds are deposited directly into separate IRAs that are owned and controlled by each participant in the plan. Contributions and earnings grow tax-deferred until withdrawn from the plan.
- Does not allow for a vesting schedule, loans, or the ability to exclude part-time employees from participation.
- Provides the investment flexibility of a brokerage account and is a low-cost alternative to the Profit Sharing Plan for small business owners.
Profit Sharing Plan
- Permits employer to make discretionary, tax-deductible contributions of up to 25% of the eligible employees' compensation, and the funds are held in trust.
- Contributions and earnings grow tax-deferred until withdrawn from the plan.
- Ideal for employers who want contribution flexibility as well as an incentive to employees to increase profitability.
- Stifel offers a standardized prototype for Profit Sharing Plans that would allow the investment flexibility of a brokerage account. Complex plan designs may call for an outside retirement plan document provider.
Defined Benefit Plans
With these plans, a future income distribution is promised (or defined) and limited. The account value at retirement is known.
- The required employer contribution to meet this promised benefit is determined by an actuary on an annual basis.
- The investment risk is borne by the employer since the contribution is based on the promised benefits.
- May allow for the highest level of tax-deductible contributions for older and highly compensated employees, but is also the most expensive plan administratively.
For a plan comparison chart, click here.