401(k) Plan Design & Profit Sharing Strategy
A well-structured 401(k) plan can serve as both a powerful retention tool and a tax-efficient compensation strategy. By layering in profit sharing, employers can reward performance, maximize contributions, and reduce corporate taxes all while staying fully compliant.
– Maximum Contributions (2025 Limits)
– Employee Deferral Limit: $23,000
– Catch-Up (Age 50+): $7,500
– Employer Profit Sharing: Up to 25% of compensation
– Total Annual Limit: $69,000 (or $76,500 with catch-up)
These contribution limits allow for flexible employer generosity and employee retirement growth.
Safe Harbor 401(k) plans automatically satisfy certain IRS nondiscrimination tests and offer simplified compliance.
Popular Safe Harbor Designs:
– Basic Match: 100% of the first 3% of deferrals + 50% of the next 2%
– Enhanced Match: 100% of deferrals up to 4%
– Nonelective Contribution: 3% of compensation to all eligible employees, regardless of participation
Offering Safe Harbor can exempt your plan from top-heavy and ADP testing – reducing risk and administrative load.
Profit sharing contributions can be subject to vesting rules, giving employers an incentive tool to retain staff.
Common Vesting Schedules:
– Immediate Vesting: Contributions belong to employees right away
– Graded Vesting: Typically 20% per year over five years
– Cliff Vesting: 100% ownership after 2 or 3 years
Employers can customize eligibility rules based on business needs:
– Age Requirement: Up to age 21
– Service Requirement: Up to 12 months (1,000 hours)
– Entry Dates: Monthly, quarterly, or semiannual
These settings help control participation and administrative complexity.
Unless the plan qualifies for Safe Harbor status, it must pass annual IRS tests:
– ADP Test (Actual Deferral Percentage)
– ACP Test (Actual Contribution Percentage)
– Top-Heavy Test
We help ensure your plan is fully compliant – no surprises at year-end.
– Reduce company tax liability with deductible contributions
– Attract and retain key employees with competitive retirement benefits
– Motivate staff with profit-sharing incentives tied to company performance
– Maintain full regulatory compliance with expert guidance
Schedule a Compliance Review Today!
Contact us today to schedule your no-obligation Compliance Review and discover how our expert advisors can help safeguard your business, simplify your processes, and ensure full regulatory confidence. We are the advisors for tomorrow – delivering forward-thinking solutions today.