Profit Sharing Plan | Gold IRA Guide
Top

Profit Sharing Plan

Gold IRA Guide / Types of Retirement Plans / Profit Sharing Plan

GoldProfitSharingPlan

Do you participate in a Profit Sharing Plan through your job? Are you looking to diversify your retirement assets by investing in physical gold and silver bullion? Then you came to the right place.

Profit Sharing Plans come in a variety of forms, and are sometimes be used to compliment another type of retirement vehicle. While not often discussed with other predominant forms of defined contribution plans, Profit Sharing Plans are an important tax-advantaged benefit for many Americans. Here, we’ll go over what Profit Sharing Plans are, how they compare to other retirement plans like IRAs and 401(k)s, how precious metals investing works, and how you can safeguard your retirement assets against stock market or currency collapse.

What is a Profit Sharing Plan?

Employers set up Profit Sharing Plans as an additional form of employee compensation that allows them to share (through a trustee) company earnings with participating employees. If you have a Profit Sharing Plan account, your employer will make contributions to your account that are invested and can grow tax-free.

Like many employer sponsored retirement plans, you will usually not be considered fully vested until several years into the plan. Unlike a Money Purchase Plan, where the percentage of annual earning that are contributed to plan accounts is predetermined, Profit Sharing Plan contributions are tied to your company’s profitability.

Typical defined contribution plan restrictions apply: no withdrawals prior to 59 ½; early withdrawals come with a 10% penalty; distributions are taxed as personal income.

Profit Sharing Plans money is usually placed into mutual funds, annuities (especially variable annuities), life insurance, or company stock. Only some plans, and under certain job conditions, allow for individual employees to direct the investments in their account.

Profit Sharing Plan Rollover Rules & Limitations

Only money that has been vested is ever eligible for a rollover, so be mindful of your vesting schedule before considering moving your retirement funds. The IRS will allow you to transfer your vested Profit Sharing Plan account funds, and requires that your plan’s administrator send you a written explanation of how to perform this tax-free.

There are penalties for taking distributions in cash prior to retirement age. Additionally, if you are going to attempt a rollover, it is highly recommended to elect to perform a direct rollover instead of an indirect rollover. Indirect rollovers have withholding requirements and run the risk of incurring early distribution penalties.

Profit Sharing Plan vs. Money Purchase Plan vs. 401(k) vs. Other Retirement Accounts

Here is a table which illustrates how a Profit Sharing Plan compares to other tax-advantaged retirement vehicles:

Plan TypeSponsorship2016 Contribution LimitRoth Option?Allow Gold Stocks?Allow Gold ETFs?Allow Gold Bullion
401(k)Private Employer$18,000 / $24,000YesMaybeMaybeNo
Solo 401(k)Self-employed$18,000 / $24,000YesYesYesYes
Keogh PlanSelf-employed or Unincorporated Employer$53,000NoMaybeMaybeNo
403(b)Government or Non-profit Employer$18,000 / $24,000YesMaybeMaybeNo
457(b)Government or Tax-exempt Employer$18,000 / $24,000YesMaybeMaybeNo
SIMPLE IRAPrivate Employer$12,500 / $15,500YesYesYesMaybe
SEP IRABusiness Owners & Self-employed$53,000YesYesYesMaybe
Profit Sharing PlanPrivate Employer$53,000NoMaybeNoNo
Money Purchase PlanPrivate Employer$53,000NoMaybeMaybeNo
AnnuityIndividualNoneNoMaybeMaybeNo
ESOPPrivate EmployerVariesYesMaybeNoNo
SARSEPPrivate Employer$18,000 / $24,000NoYesYesMaybe
Traditional IRAIndividual$5,500 / $6,500YesYesYesNo
Precious Metals IRAIndividual$5,500 / $6,500YesYesYesYes
Thrift Savings Plan (TSP)Government or Military$18,000 / $24,000YesNoNoNo
(“Maybe” indicates that gold investment options are at the discretion of your plan provider. For example, certain 401(k) plans offer gold mutual funds or ETFs, while others do not.)

Types of Gold You Can Invest in Through a Profit Sharing Plan

Your Profit Sharing Plan investment choices are limited to what your plan provider makes available to you. In many cases, you will not be able to direct the investments made on your behalf through your plan. Legally, however, Profit Sharing Plans have the option of offering the following types of investments:

  • Individual stocks
  • Individual bonds (corporate and government)
  • Options
  • Mutual fund shares
  • Exchange Traded Fund (ETF) shares

In short, this means that you cannot invest in physical gold bullion (or any other approved investment metal) through a Profit Sharing Plan. The only way to invest in gold through a Profit Sharing Plan is to purchase stocks in gold mining companies or to purchase a mutual fund that includes gold mining stocks. This strategy is referred to as buying “paper gold.”

Investing in Physical Gold vs. “Paper Gold”

So-called “paper gold” stocks are the shares of companies that mine, produce, and explore for gold ore. There are literally hundreds of gold stocks to choose from, and the larger companies are listed on major gold indices like the Gold Miners Index (GDX) or the BUGS Index (HUI).

Gold stocks tend to be more risky than owning physical gold. This is because, historically, gold stocks will appreciate quickly when gold spot prices increase, but fall must faster than spot prices when gold declines.

Gold stocks are also exposed to additional kinds of risk, including:

  • Regulatory Risk – mining and exploration companies are subject to increased regulation and taxes.
  • Cost of Production Risk – mining equipment depreciation, rising land values, labor cost increases, etc can all negatively impact a mining company's valuation.
  • Management Risk – mismanaged or overly leveraged companies can, and do, declare bankruptcy or close shop altogether.
  • Fiat Currency Risk – when you sell securities like gold stock or shares of a gold mutual fund, you will still be paid in a fiat paper currency. In the even of currency collapse, you may be left holding worthless pieces of paper.

The value of physical gold has never hit zero and has retained value for thousands of years. In terms of staying power, physical gold beats “paper gold” hands down.

Benefits of Dedication 5-20% of Your Retirement Portfolio to Precious Metals

Gold investments are a simple, safe way to diversify your retirement portfolio. Gold — along with silver, platinum and palladium — will help to protect your assets against stock market volatility and inflation.

Not only is gold a great hedge, but gold offers plenty of growth potential. In fact, many investors buy gold for its growth prospects, and many analysts predict gold to continue to see gains in the future.

The total amount of precious metals in your retirement portfolio will depend on your own risk tolerance and retirement horizon. One of the best ways to set up a diversified retirement portfolio — and receive tax benefits on your precious metals investments — is to open a self-directed IRA.

Sign up to learn more. It's free!

If you're worried about the economy and want to learn tips on how to protect your retirement savings in case of another systemic collapse, sign up to our monthly newsletter now for free! We cover topics such as: precious metals investing, inflation, currency devaluation, national debt, the Fed's financial policies, world politics, and much more. Join now and we'll send you a free PDF report entitled “5 scams to avoid when investing in bullion gold & silver”