Profit-Sharing Plan

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DEFINITION of 'Profit-Sharing Plan'

A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings.

Also known as "deferred profit-sharing plan" or "DPSP."

INVESTOPEDIA EXPLAINS'Profit-Sharing Plan'

This is a great way to give employees a sense of ownership in the company. The company decides what portion of the profit will be shared. And there are typically restrictions as to when and how you can withdraw these funds without penalties.

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RELATED FAQS
  1. What's the average salary of a financial advisor?

    A financial advisor is a professional who is engaged in the business of advising clients about financial matters. "Financial ... Read Full Answer >>
  2. What types of plans allow catch-up contributions?

    Catch-up contributions can only be made to plans with salary deferral features. If you want to make catch-up contributions, ... Read Full Answer >>
  3. My company has three partners but plans to hire more this year. Would we be better ...

    It depends. The SBO-401(k) plan is suitable if the plan covers only the business owners - in this case, the partners in the ... Read Full Answer >>
  4. What is the difference between a Keogh and an IRA?

    The Keogh plan, or HR10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed ... Read Full Answer >>
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    It depends. A question such as this requires detailed information in order to provide a helpful response. Here is a general ... Read Full Answer >>
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