Eligibility

• Corporations, partnerships or sole proprietorships can institute a qualified profit-sharing plan regardless of how many or how few employees on the payroll. The owners have wide leeway on whom they may enroll and are permitted to exclude full-time employees under age 21, part-timers or those who have been with the company for less than 12 months. Employees with under two years may also be excluded if the company has an immediate and complete vesting schedule.
  
  

Amounts

• Employers can generally deduct contributions made to a qualified profit-sharing plan, including for an owner's retirement. These amounts, together with interest, dividends and capital gains, are typically tax-free until disbursement by the plan. The maximum deductible amount allowed by the Internal Revenue Service is 25 percent of a $245,000 total compensation limit as of 2010.
  
  

Early Distributions

• If a plan participant receives a distribution under the age of 59 1/2, a 10 percent penalty may apply, with the following exceptions: the employee becomes disabled or dies; the money is spent on qualified medical treatment and care; or a number of less common circumstances occur. Employees and owners should consult with their plan managers before making any early withdrawals to avoid what could be onerous penalties.
  
  

Required Distributions

• Once the distributions are made, they are treated as regular income and taxed accordingly. Employees can begin accepting money from the plan after reaching age 59 1/2 but in no case can they wait beyond April 1 after they reach the age of 70 1/2. Participants have the advantage of interest and dividend compounding, and pay taxes at a rate generally lower than it would have been at the time of employment.