Profit Sharing Plans

Profit sharing plans offer employers, especially small business owners, flexibility with regard to contributions.  Contributions to a profit sharing plan (PSP) are discretionary.  The employer can choose when and how much to contribute.  If profits are low during a year no contribution is required.  Conversely, employers can make contributions even if the company is not profitable.

All contributions to a profit sharing plan are deductible for federal, and in most cases, state income tax purposes.  An employer’s maximum deduction is limited to 25% of the annual compensation paid to eligible employees.  For 2012, the individual maximum contribution limit for employees is of 100% of compensation or $50,000, whichever is less.

There are three basic types of profit sharing plans; traditional, age-weighted, and new comparability.  In a traditional PSP, contributions are based on a fixed percentage of an employee’s salary.  The age-weighted method allocated contributions based on the age and total compensation of eligible employees.  This is similar to a defined benefit pension, but employer contributions are discretionary.  The new comparability allocation method allows an employer to divide its employees into different classifications for purposes of allocating contributions.

Like most retirement plans, PSPs allow for tax-deferred growth of all contributions until withdrawal at retirement.  PSPs serve as a great way to attract and keep talented employees.  Kolinsky Wealth Management specializes in designing and administering employee sponsored retirement plans.  We help write the plan document, create a trust for the plan’s assets, develop a recordkeeping system, and provide plan information to the participants.  Contact us today to get started on your plan.

Steven Kolinsky is a Representative with Kolinsky Wealth Management and may be reached at, (201) 474-4011 or


Defined Benefit Plans

Defined benefit plans are qualified employer-sponsored retirement plans, which offer tax advantages to employers and participating employees.  As an employer, you can deduction the contributions made to the plan, and your employees do not have to pay taxes on those contributions until they begin receiving distributions.

A defined benefit plans guarantees an individual a certain benefit upon retirement depending on salary, age, years of service, and vesting.  Each year pension actuaries determine the required contribution to the plan to fund the future benefits.  Employers are normally the only contributors to defined benefit plans.  The two basic kinds of defined benefit plans are pensions and cash-balance plans.

Many defined benefit plans allow you to choose how you will receive your compensation.  In a single life annuity, you receive a fixed monthly benefit until you die.  In a qualified joint and survivor annuity, you receive a fixed monthly benefit until you die, and your surviving spouse will receive benefits until his / her death.  In a lump-sum payment, you receive the entire value of the plan in one payment.

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Real Estate Investment Trusts

Real Estate Investment Trusts or REITs make investments in large-scale, income producing real estate accessible to average investors.  A REIT is a corporation which owns a portfolio of real estate and issues stock to investors.  The Internal Revenue Code states numerous criteria for a company to qualify as a REIT; including, investing at least 75% of its total assets in real estate, deriving at least 75% of its income from rents or interest on mortgages, and annually paying at least 90% of its taxable income in the form of shareholder dividends.

Equity REITs purchase, own, and manage income producing real estate properties.  In general equity REITs develop the properties to operate themselves rather than developing properties for sale.  Revenues come from rental income and capital gains from the sale of properties.  Mortgage REITs loan money to real estate owners and operators or purchase existing mortgages / mortgage backed securities.  Revenues come from interest earned on mortgage loans.  Hybrid REITs engage in a combination of both activities.

Most Real Estate Investment Trusts, but not all, have some type of specialty.  Some may own a specific type of property (shopping centers, health care facilities, apartments, data centers, etc) or a specific type of lease (ex. only triple net leases).  Others may focus on a certain region, country, state, or even city

I recommend REITs to some of my clients as an alternative asset.  A small proportion of REITs are registered with the Securities and Exchange Commission and traded on a major stock exchange.  As of 1/1/2012 only 166 REITs were publically traded.  A much larger percent of REITs are registered with the SEC, but not publically traded.

Real Estate Investment Trusts can be an investment for you.  Contact Kolinsky Wealth Management to see if REITs are suitable for your needs.

Steven Kolinsky is a Representative with Kolinsky Wealth Management and may be reached at, (201) 474-4011 or