What Is A Profit-Sharing Plan? Estimate Retirement Income With Free Calculator

Shawn Plummer

CEO, The Annuity Expert

Do you want to know how to estimate retirement income? A profit-sharing plan is a great way to ensure you have plenty of money saved up for your golden years. This free calculator will help you determine how much income you can expect from your withdrawals. So don’t wait any longer! Use our profit-sharing calculator today and see how much money you could save for retirement.

Profit Sharing Calculator

An annuity is an insurance policy that guarantees to distribute a paycheck to you for the rest of your life, even after the profit-sharing plan runs out of money. This can provide much-needed security in retirement, knowing that you will have a regular income stream no matter what happens with your other retirement savings. In addition, an annuity can help to automate the retirement withdrawal process for profit-sharing retirement plans, making it one less thing you have to worry about.

Note: You can purchase an annuity (with no tax penalties) with your profit-sharing plan, 401(k), IRAs, retirement accounts, investments, and cash.

Profit-Sharing Withdrawal Comparison

Historically financial advisors recommend withdrawing 4% from your profit-sharing plan and adjusting for inflation. However, the 4% rule has been debunked as a safe withdrawal rate. New research concludes as low as 2.8% is the new rule. The following table compares rolling your PSP into a new annuity with withdrawing income yourself or utilizing an advisor.

FeaturesAnnuityPSPIRARoth IRA
Withdrawal Percentage5.20% – 6.55%4%4%4%
Can Income Increase?YesYesYesYes
Can Income Decrease?NoYesYesYes
How Long Will Money Last?Lifetime30 Years+30 Years+30 Years+
Annual Fees0 – 1.50%1% – 4%1% – 4%1% – 4%
Death BenefitAccount BalanceAccount BalanceAccount BalanceAccount Balance

Example: A 60-year-old retiree starts withdrawing immediately from their $1 million portfolio, they would receive:

What Are Profit-Sharing Plans?

A profit-sharing plan, or deferred profit-sharing plan (DPSP), is a retirement account where employees receive a percentage of the company’s profits based on their earnings per quarter or year. However, excessive withdrawals often occur with this arrangement, which typically results in penalties.

Profit-sharing plans are an excellent way to have financial security in retirement. They also help businesses when they are looking for a retirement plan. In addition, employees and employers benefit from these plans, making them a good choice for everyone involved.

Profit-sharing plans are great for employers to share profits with their employees. With these plans, employers can contribute as little or as much as they want each year. This flexibility makes profit-sharing plans a popular choice for many businesses.

  • A profit-sharing plan can help keep talented employees by giving them a share of the company’s profits.
  • A profit-sharing plan benefits all types of employees.
  • The money you contribute can grow if you invest it in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • The Federal and most state governments generally do not tax contributions and earnings until they are distributed.
  • A profit-sharing plan allows employees to take their benefits when they leave the company. This is helpful for the company because it does not have to worry about administrative responsibilities.

How Does A Profit-Sharing Program Work?

A profit-sharing plan is a retirement plan funded entirely by your employer. For example, if you have a 401(k) with employee contributions, it is not a profit-sharing plan.

Employers set up profit-sharing plans to decide how much money they want to give each employee. Sometimes, businesses do not give any money for some years. But when they give money, the company has to plan how the money will be divided among the employees.

The most common way businesses determine how to share profits is using the comp-to-comp method.

  • This calculation starts by figuring out the total amount of all employee compensation.
  • Then, the company divides each employee’s annual salary by that total to find what percentage of the profit-sharing plan they are entitled to.
  • Finally, that percentage is multiplied by the total amount of shared profits to find how much each employee gets.

Profit-Sharing Plan Requirements

A profit-sharing plan is a retirement plan that is available for any size of business. So, even if a business already has other retirement plans, it can still establish a profit-sharing plan.

A company has a lot of flexibility in implementing a profit-sharing plan. This means that the company can choose when and how it makes contributions. First, however, the company must show that the profit-sharing plan does not discriminate in favor of highly paid employees.

Profit-Sharing Plan Contributions

Only an employer can contribute. A “401(k) plan” is a profit-sharing plan with a salary deferral feature added. The amount that can be deferred is the lesser of 100% compensation or $66,000 for 2023 ($61,000 for 2022; $58,000 for 2021; $57,000 for 2020). This amount is subject to annual cost-of-living adjustments.

Profit-Sharing Plan Distributions

  • Any withdrawals before age 59-1/2 are subject to a 10% early withdrawal penalty (no exceptions).
  • Loans are permitted.
  • In-service withdrawals are permitted.

Profit-Sharing Plan Benefits

Employees benefit from profit-sharing payments because they don’t have to pay Social Security and Medicare taxes on those payments. As a result, the net benefits are even more significant for employees than if they received a comparable taxable bonus. Employers may also find a few benefits to offering a profit-sharing plan, especially compared to other retirement plans.


First, profit-sharing plans may motivate employees to do their best work. If they know they will get a share of the profits if they do well, they may be more likely to act like business owners. It can also help attract and keep skilled employees. Finally, vesting schedules can encourage talented employees to stay with a company longer.

Tax advantages

Not only do employers gain benefits from profit-sharing plans, but they also get to reduce their taxes. Employers can deduct what they contribute to a 401k with profit sharing as late as September the year after, which is still counted for deductions for the past tax year.

Next Steps

A profit-sharing plan is a great option if you’re looking for a retirement plan to benefit you and your employees. These plans offer financial security in retirement and can help businesses attract and retain talent. With our free calculator, you can estimate how much income you can receive from a profit-sharing plan. Then, when you’re ready to start, contact us for a quote.

What Is A Profit-Sharing Plan? How Does It Work? Use Our Profit-Sharing Calculator To Estimate Your Retirement Income.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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