Friends,
For many business owners, deciding which retirement plan best fits their company is challenging. There are several options with varying advantages and restrictions. The size of the business, costs, desired level of employee benefit, and plan flexibility are a few factors that owners should consider before choosing the retirement plan for their business.
401(k) Plan
This is the most widely known qualified retirement plan. The 401(k) plan has historically been associated with large companies as the costs were prohibitive for smaller businesses. We have seen these costs become more affordable to encourage small business participation. They are subject to reporting and administrative testing.
- Employees can contribute up to $23,500 for 2025, with an additional $7,500 contribution allowed for those over 50
- An additional $11,250 catch-up contribution is available for those aged 60-63 in lieu of the $7,500 catch-up contribution
- Many offer a Roth 401(k) option within the plan
Profit-Sharing Plan
A PSP is usually used as an additional 401(k) plan feature. It allows an employer to contribute additional funds based on the company's profitability and is up to the employer's discretion.
- Contributions are deductible to the employer
- Total contributions can reach $70,000 (or $81,250 with the catch-up contribution for those over 60)
- Allows employers to set a vesting schedule for employees’ portion
If you would like guidance on how to set up or have us consult on your company’s 401k plan, please reach out!
Andrew