Incidental Profit Sharing Plan - defintion?

[almostASA]

Can anyone tell me what an incidental profit sharing plan is? I'm reviewing Chapter 5 of Yamamoto, and the section that covers this type of funding vehicle (page 136) doesn't actually define it.

[almostASA]

Thought I'd check again - anyone who can help?

[Julietn528]

Incidental means that it is incidental (25% or less) to the total contributions. So if the company is making total contributions to your profit sharing account, then anything for health insurance can only be 25% of the total contributions. So that means 75% goes to retirement DC plan, and 25%*.75% can go to health. If your company is contributing more than 25% you don't have the positive tax advantages, which is the whole objective of these funding vehicles.

[almostASA]

Thanks! The part that I was having trouble with is the "profit sharing plan." I googled it to try to get a better idea, and it just seems like an account that the employer sets up and makes contributions to (which is actually what most of these funding vehicles sound like to me...). The only notable things I found were that contributions aren't required and that interest is earned tax-free. One site also said that employees couldn't contribute, but that might have been a feature of their own product and not of the plan in general.

Generally they seem like retirement plans, but as you point out, the "incidental" part means it can be used for healthcare up to a limit.

[Julietn528]

Thanks! The part that I was having trouble with is the "profit sharing plan." I googled it to try to get a better idea, and it just seems like an account that the employer sets up and makes contributions to (which is actually what most of these funding vehicles sound like to me...). The only notable things I found were that contributions aren't required and that interest is earned tax-free. One site also said that employees couldn't contribute, but that might have been a feature of their own product and not of the plan in general.

Generally they seem like retirement plans, but as you point out, the "incidental" part means it can be used for healthcare up to a limit.


I think profit sharing plans are 401k, I'm not positive though. I may ask a pension actuary if I get a chance.