MODULE 12: UNIT 5 Deferred Profit Sharing Plan

Question 1

Introduction

Answer 1

• An employer shares some of the profits of a business with employees
• Employer makes contributions to the plans
• employer deducts the contributions for tax purposes and investments within the plan grow tax sheltered

Question 2

Contributions

Answer 2

DPSP accumulates assets through two sectors:

• Contributions made by an employer into the plan
• Lump sum transfer of assets from another DPSP
• Made only by an employer
• Overall maximum amount that is deductible in order to integrate with other registered programs
• 2%-3.5% of profits
• may be formula based on employees earnings or fixed amount

Maximum deductible limit is lesser of:

• 18% of employees compensation for the year
• one-half of the money purchse limit for the year