Profit Sharing Plans for Business Owners

Profit Sharing Plans

A Flexible Retirement Strategy for Your Business

A Profit Sharing Plan gives business owners the ability to make employer contributions toward retirement while maintaining flexibility from year to year.

Despite the name, contributions aren't necessarily tied directly to a company's profits. Instead, a Profit Sharing Plan can provide another way to reward employees, build your own retirement savings, and make thoughtful use of business cash flow.

At Andstead Advisors, we help business owners determine how a Profit Sharing Plan may fit into both their retirement strategy and the broader financial goals of the business.

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Why Consider a Profit Sharing Plan?

Business income doesn't always look the same from one year to the next. A retirement plan that provides flexibility can be especially valuable when you're balancing retirement savings with the ongoing needs of your business.

Profit Sharing Plans allow employers to determine how much the business contributes each year, subject to plan terms and applicable limits. That flexibility can make them useful for businesses that want to increase retirement savings without committing to the same contribution every year.

For the right business, a Profit Sharing Plan can help:

+ Increase retirement savings opportunities
+ Provide flexibility in employer contributions
+ Reward and retain employees
+ Create potential tax advantages
+ Coordinate retirement benefits with the financial needs of the business

The plan design matters. How contributions are structured and allocated can significantly affect both the owner and employees.

Building a plan around your business

A Profit Sharing Plan isn't simply an account you contribute to. How the plan is designed can determine who benefits, how contributions are allocated, and how well the plan supports your broader objectives.

We consider the makeup of your workforce, how much you'd like to contribute toward your own retirement, the consistency of business cash flow, and whether attracting and retaining employees is part of the goal. We also look ahead, considering how changes in your business could affect the plan over time.

The goal is to create a retirement strategy that works for the people participating in the plan while making sense for the business funding it.

How andstead helps

Evaluate the right plan structure

Profit sharing can be structured in different ways. We help evaluate your objectives, workforce, business finances, and personal retirement goals to determine whether a Profit Sharing Plan makes sense and how it fits alongside your other options.

Coordinate plan design

The details of the plan can have a meaningful impact on its effectiveness. We work with you and the appropriate retirement plan professionals to coordinate a structure that supports your goals while meeting applicable plan requirements.

Connect the Plan to Your Financial Strategy

For a business owner, employer contributions affect both sides of the financial picture. We consider the impact on business cash flow, taxes, personal retirement savings, investments, and other long-term goals rather than evaluating the plan in isolation.

Review as your business changes

Your workforce, profitability, and priorities will evolve. We help review your retirement strategy over time and determine when changes to the plan or a different approach may be appropriate.

Explore other retirement strategies for business owners

A Profit Sharing Plan can stand on its own or be part of a broader retirement plan strategy. Depending on your business and objectives, another structure may be more appropriate.

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Frequently Asked Questions

1. Does my business need to make a profit to contribute to a Profit Sharing Plan?

Despite the name, Profit Sharing Plan contributions do not have to be directly tied to the company's profits. Whether and how much the business contributes depends on the plan terms, applicable rules, and the financial circumstances of the business.

2. Do I have to make a Profit Sharing contribution every year?

Profit Sharing Plans can provide employers with flexibility in determining contributions from year to year. However, plan provisions and applicable retirement plan rules still need to be followed, so contribution decisions should be made within the context of the plan.

3. Can a Profit Sharing Plan cover both the business owner and employees?

Yes. Profit Sharing Plans can be designed to provide retirement benefits for eligible owners and employees. The way contributions are allocated depends on the structure of the plan and applicable requirements.

4. Can I have a 401(k) and a Profit Sharing Plan?

Yes. A 401(k) can include a profit-sharing component, allowing eligible employees to make their own salary deferrals while the employer has the ability to make additional contributions. The appropriate structure depends on the business, workforce, and objectives.

5. How do I know if a Profit Sharing Plan is right for my business?

A Profit Sharing Plan may be worth considering if you want greater flexibility in employer retirement contributions, are looking to increase retirement savings, or want to provide an additional benefit to employees. Your workforce, cash flow, business structure, and personal retirement goals should all be considered before choosing a plan.

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What is the best retirement plan for a small business owner?

Learn how to choose the best retirement plan for your business. Compare Solo 401(k)s, SEP IRAs, and Profit Sharing Plans to determine which option best aligns with your goals, employees, and tax strategy.

Our Process

We create strategies that are tailored to your needs and goals.

Create a Retirement Plan That Works for Your Business

The right retirement plan should support the people who make your business successful without losing sight of your own long-term financial goals.

From our Denver Tech Center office, Andstead works with business owners throughout Colorado and across the country to evaluate retirement plan strategies and build them into a broader financial plan.

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