Question

ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT
A) The employer's cost is not affected by the age and the number of employees.
B) Profit sharing plans provide an incentive for employees to work harder and more efficiently.
C) The 10 percent penalty tax does not apply to distributions prior to age 59.5.
D) ACME enjoys greater flexibility in employer contributions.

Answer 1

All of the following are advantages of this type of retirement plan EXCEPT C) The 10 percent penalty tax does not apply to distributions prior to age 59.5.

Which of the following is a major benefit of an employer-sponsored retirement plan?

The plans lower your taxable income, which means that you will pay less in taxes for the year. They also grow deferred, which means that any profits growth is tax-free until it is withdrawn, and you can receive "free money" through employer matching contributions.

A profit sharing or stock bonus plan is a type of defined contribution plan where the employer or the plan specifies how much money will be donated each year (out of profits or otherwise).

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