Profit-Sharing is a feature that can be added to a normal 401(k) plan to help your employees save for retirement.
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Small businesses create 401(k) profit-sharing plans to help employees save for retirement, while allowing for maximum flexibility on how much the plan costs. Employers can decide from year to year whether they want to make contributions to employee plans depending on how much revenue the company earned that year.
Even if employees themselves do not wish to take advantage of tax-deferred savings, they can still receive the profit-share contribution. Compared to 401(k) matching contribution formulas, employers find a wider range of options with profit-sharing, though there may be limitations based on IRS nondiscrimination test rules.
Contacting Ubiquity to inquire about creating a 401(k) profit-sharing plan or adding profit-sharing to an existing 401(k) is the best way to know whether this type of plan is right for your company. See below for further helpful information.
Employers like profit-sharing plans because:
Employees like profit-sharing because:
No matter which formula is used, all 401(k) profit-sharing plans are subject to the following IRS rules:
Employers can choose from a number of profit-sharing formulas:
Profit-sharing is generally a worthwhile benefit, though it may not be right for every company due to the following factors:
In most cases, profit shares are offered in conjunction with a 401(k), which allows employees to put their own money into the plan–up to $26,000 a year with catch-up contributions–while employers continue contributing up to the $58,000 maximum. Combining both features creates flexibility for employee bonus structures, while allowing employees and employers to save more for the future.
Starting a new 401(k) plan with profit sharing will require a system that tracks contributions, investments, distributions, and IRS compliance. Ongoing administrative upkeep is typically outsourced to a Third-Party Administrator like Ubiquity.
Setting up a profit-sharing plan as part of an existing 401(k) can be done by simply adding an amendment. As a 401(k) plan administrator, Ubiquity consults with clients to make sure the profit share aligns with business goals.
All in all, profit sharing is a generous incentive to encourage workers of all compensation levels to continue providing their best efforts, while allowing maximum flexibility for employers to keep costs reasonable. Contact Ubiquity to learn more about profit-sharing benefits.
If you are a small business owner and need a retirement plan for yourself and your company, only Ubiquity offers flat-fee plans, plus expert guidance along the way.
We will fully customize your plan to meet the specific needs of your small business.
Setting up a 401(k) can be complicated. Only Ubiquity gives small business owners access to retirement experts in addition to industry-leading low flat-fees. Each sales expert has over a decade of experience assisting business owners in 401(k) plan design. Take advantage of this free benefit.