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Author: JohnandDeanna Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76392  
Subject: 401K Matching vs Profit-Sharing Date: 6/6/2000 11:15 AM
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Since starting at my company, we have been waiting for them to start a 401K Match. Now, our company just announced that instead of a matching 401K, they have decided to initiate Profit-Sharing. What exactly does that mean and is it better than a 401K Match for non-management employees?
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Author: ShyCougar Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22402 of 76392
Subject: Re: 401K Matching vs Profit-Sharing Date: 6/6/2000 12:43 PM
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Since starting at my company, we have been waiting for them to start a 401K Match. Now, our company just announced that instead of a matching 401K, they have decided to initiate Profit-Sharing. What exactly does that mean and is it better than a 401K Match for non-management employees?

With employer match, the employer is committing to contribute a set percentage (up to a specified limit), whether the company is doing well or not. With profit sharing, the employer is offering a discretionary contribution dependent upon the company's profitability. My employer, for example, does both: a 50% match up to 6% and, when possible, a discretionary profit sharing contribution of 2% to 10%. The profit sharing contribution is voted on by the Board of Directors.

Shy

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Author: bankerbob4 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22407 of 76392
Subject: Re: 401K Matching vs Profit-Sharing Date: 6/6/2000 1:38 PM
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I have done research at my current employer concerning the Profit-Sharing Plan. The company will make an annual voluntary contribution to my account. These amounts can range from 0% to 15%. I am also permitted to contribute up to 10% of my own salary tax-free. The money can be used to buy common stock of my company or a choice of three somewhat conservative mutual funds. The growth is tax-deffered. It differers from company to company.

As for a 401(k), I do not know how it would compare over the long haul to a Profit Sharing Plan. It depends on the amount the company will match and so on. It makes some sense that if the company one is working for is very profitable, the maximum contribution would be made, therefore beeting the 401(k). If a company does poorly it makes sense that the 401(k) would win out because the company has to match. These are big SWAG's (Scientific Wild Ass Guesses).

It makes my head hurt!!! Some fool more foolish than I must reveal the rest of the answers.

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Author: TMFJeanie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22410 of 76392
Subject: Re: 401K Matching vs Profit-Sharing Date: 6/6/2000 2:20 PM
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ShyCougar:
With employer match, the employer is committing to
contribute a set percentage (up to a specified limit), whether the
company is doing well or not. With profit sharing, the employer
is offering a discretionary contribution dependent upon the
company's profitability.


Keep in mind that in some companies, even the employer match may also be discretionary. You have to check the wording carefully.

A profit sharing plan is a more typical way for a company to protect itself from contributing in a down year, but in up years, the contribution can be substantial. We've experienced both plans, and if you're lucky to work for a growth company, the profit sharing can be wonderful bonus to your retirement funds. My husband has received matches equal to 100-150% of his own yearly contributions -- and even in the rare down years where he rec'd nothing, he's still way ahead than with a conventional match program.

Study your own employer's financials -- a conversion to profit sharing might be a very good thing :-)


Jeanie



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