Which advantage is available to employees participating in a qualified profit-sharing plan?

Nature of qualified profit-sharing plans.

Profit-sharing plans are qualified retirement plans under federal tax law.

Tax treatment of contributions.

Employer contributions to the plan are not included in the employee’s current taxable income.

Taxes are deferred until distribution.

Why the other options are incorrect.

A. Avoid penalties: Early distributions may still be penalized.

C. Defined benefit vs. defined contribution: Profit-sharing plans are defined contribution plans only.

D. Earnings tax-free: Earnings are tax-deferred, not tax-free.

Maryland tax conformity.

Maryland generally follows federal income tax treatment for qualified plans.

Conclusion.

The key advantage is current income tax exclusion of contributions.