Profit Sharing Plans
Great for professional services companies that want to maximize pre-tax contributions for owners and key employees.
TAX DEDUCTIBLE
Contributions are tax deductible for the company.
Employees can be in categorized into groups with different benefits.
FLEXIBLE
Contributions are optional. You can choose whether to fund each year.
Targeted Savings with Flexibility
Profit sharing plans give companies the flexibility to group employees into different allocation groups. This allows company owners and key personnel to receive larger benefits than other groups, while satisfying non-discrimination rules.
Profit sharing plans can be used as stand-alone plans or they can be paired with a 401(k) or cash balance plan to achieve greater retirement savings.
Today
Thousand
401(k) + Profit Sharing Contributions
Per Person for 2020
After 15 Years
Million
Accumulated Retirement Savings
Assumes 6% Annual Return & $0 Starting Balance
Profit Sharing Allocation Methods
How profit sharing plans work.
| Age | Salary | Salary Proportional | FICA Integrated | Age-Weighted | New Comparability | |
|---|---|---|---|---|---|---|
| Owner 1 | 53 | $285,000 | $55,253 | $57,000 | $57,000 | $57,000 |
| Owner 2 | 47 | $150,000 | $29,600 | $30,113 | $46,809 | $57,000 |
| Employee 1 | 40 | $52,000 | $10,261 | $9,693 | $9,167 | $2,939 |
| Employee 2 | 35 | $48,000 | $9,472 | $8,948 | $5,628 | $2,713 |
| Employee 3 | 35 | $40,000 | $7,893 | $7,457 | $3,119 | $2,261 |
| Employee 4 | 30 | $35,000 | $6,906 | $6,524 | $2,318 | $1,978 |
| Employee 5 | 25 | $32,000 | $6,315 | $5,965 | $1,659 | $1,809 |
| % to Owners | 67.5% | 69.3% | 82.6% | 90.7% |
Hypothetical illustration only. Actual results may differ.
What types of companies are ideal for a profit sharing plan?
Profit sharing plans are a great fit for professional service companies because there are often high-earning individuals that
are seeking to maximize their retirement savings on a pre-tax basis.
LAW FIRMS
Help partners and senior attorneys maximize their pre-tax savings.
MEDICAL PRACTICES
Physicians and their practice managers can accrue greater benefits.
ENGINEERING FIRMS
Architects & engineers can create different allocation groups.
CPA FIRMS
Various allocation methods help partners and managers find the right fit.