Can I Take Money out of My Profit Sharing?

What is a profit-sharing plan?

A profit-sharing plan is a type of defined-contribution plan that lets employers help their employees save for retirement. It is similar to the 401(k) plan and allows employers to make pre-tax contributions based on the company’s profits. Those contributions and earning are not taxed until distributed.

Contributions from the employers are discretionary. This means, each year, an employer can decide whether and how much to contribute. For 2020, the maximum contribution to a profit-sharing is 25% of an employee’s salary or $57,000, whichever is less.

money

Profit-sharing plan withdrawals

Like any other retirement plan, a profit-sharing plan has strict rules on when an employee can start withdrawing money. For example, an employer may outline a schedule that determines how long an employee may work in a company to claim part of the contribution.

Early withdrawals and penalties

Early withdrawals, before age 59 ½ may be subject to a 10% penalty plus payment of taxes on the amount withdrawn. In case your company has withdrawal exceptions, you may be able to avoid penalties. Some of these exceptions include when you become disabled, your medical expenses exceed 7.5% of your adjusted gross income, and in case of death. If you die, your estate or beneficiaries receive the account contributions.

Other exceptions include those resulting from excess contributions, divorce settlements, and when you leave your job. If you leave your job before turning 55, you can still withdrawal your money without paying the penalty if you take a series of substantially equal periodic payments.

Again, if you roll over your distributions to another eligible retirement saving plan, you will be off the hook for paying the 10% penalty.

fine print

Other penalties

Your account is subject to additional penalties if you make prohibited transactions. You will also be penalized if other disqualified persons, for example, your relatives, make prohibited transactions.

How to withdraw from profit sharing

cash register

Early withdrawals

  • Step one

Talk with your employer about the withdrawal policy to find out whether it is possible to withdraw your money early. Some plan allows employees to withdrawal a portion of the money early, and others don’t.

  • Step two

Calculate your tax. Even when allowed to make early withdrawals, you are not off the hook to paying tax and penalty on any amount you withdraw before reaching 59 ½.

  • Step three

Search for exemptions to the penalty tax. If you roll over your money to another qualified retirement plan, leave the job after 55, or make distributions during a divorce, the penalty for withdrawal will not apply.

  • Step four

Fill out the right papers and submit them to your employer.

Regular withdrawals

best rates

  • Step one

Talk to your employer and find out how soon you can access your money. For example, Iron Workers’ plan participants must be 65 before they begin making regular withdrawals unless they qualify for an exception.

  • Step two

While you will not pay penalty taxes after age 59 1/2, you can’t avoid federal income tax on the money you withdraw. When you turn 70 1/2, you have the option to withdrawal all your money at once or make minimum withdrawals. Make sure to decide which option works best for you.

  • Step three

Start making withdrawals as soon as your employer allows it, and at that point you realize the most benefits.

Conclusion

It pays to work with a financial planning firm that knows it very well. At BeamaLife, we manage many defined contribution plans such profit sharing plan and defined benefit pension plans and have the best plan designs in the country.

Whether you are a successful business owner, doctor, independent pharmacist or any other self-employed professional, please call (877) 972-3262 to speak with pension plan expert.

 

“ We have been dealing with BeamaLife for more than ten years now. They have been great advisors to us in terms of advanced risk management. They also helped to put in place pension plan strategies for our partners. BeamaLife has always been extremely professional and very attentive to our needs. Our sincere thanks! ”

Mr. Merchant
Software Company Owner

Our Success Speaks for Itself!

Are you ready to be part of this exclusive group of smart & successful individuals?

3000

Physicians


1000

Dentists


600

Independent Pharmacists


3000

Business Owners


Testimonials

WHAT OTHER HIGH INCOME EARNERS HAVE SAID….

Regardless of the topic or question, BeamaLife has unique individuals with the right background to address my concerns. As a result, I have a much clearer understanding of how certain wealth creation strategies were the right fit for my company. I also have been able to take much higher income tax deductions for the corporation by implementing a plan set forth by Neil Jesani. They have maintained an unmatched level of professionalism during my interactions with them over the years.”

Mr. Peters
Software Company Owner, California

“BeamaLife was referred to me by my CPA for my pension plan funding. I also wanted to take care of my estate tax need. Neil and his team have done a superb job of creatively funding my pension plan, acquiring most cost-effective life insurance for our estate planning need with very minimum out pocket using velocity of money principle and putting my existing investment to second use. They also help us setting up all our estate planning documents.”

Dr. Martin
New Jersey

“BeamaLife has been a great advisor to us for many, many years. They not only helped us take higher income tax deductions but, also helped us organize our investment portfolio in an efficient manner. Through this relationship, we were able to create substantial wealth with the very low out-of-pocket expense. Neil Jesani from BeamaLife is very responsive, professional and extremely knowledgeable”

Mr. Sakaria
Multiple Pharmacy Owner, New York

As Feature On