The Joseph Group

Profit Sharing

February 16, 2022


Welcome to the New Year! It’s been a crazy first month for a multitude of reasons. While the kickoff has been a bumpy ride so far, there are many reasons to be hopeful and I hope you and your business see that hope to fruition.

A question we are often asked is what more can a plan sponsor do within their 401(k) plan to benefit ownership and the team. This is especially popular when a business turns in a profitable year. In 2021, many businesses exceeded expectations and perhaps even broke previous company records for revenue. With exceptional business success, naturally comes increased emphasis on taxes. The 401(k) Plan is often looked at to find deductions for companies and owners.

Once a plan has met its compliance requirements and deposited either the annual matching or safe harbor contributions, plan sponsors often revisit the plan as an option for additional savings and deductions. This is where profit sharing contributions come into play. While this type of plan feature may not be the right fit for every business or plan, in some cases, profit sharing contributions deposited into the retirement plan can be an excellent solution. Additionally, while the business may not have provided this type of contribution previously, it still often exists as an option in the plan document.

Profit Sharing contributions into a retirement plan can add a lot of value for both the company and employees. What we most often find is that one or more of the below reasons is what plan sponsors are seeking.

  • Creating a significant tax deduction for the business
  • Attracting and retaining top industry talent
  • Can be designed to maximize ownership’s retirement benefit
  • Connecting employees in a meaningful way to the business’s success
  • Replacement to a year end bonus program

While profit sharing programs vary from plan to plan, in most cases, these contributions can be provided on a discretionary basis. Compliance testing is, as always, a critical component to the success of the program. Similar to building a house, you will want to have a great foundation in place before you stack on top of the current retirement plan.

If you already have a plan in place, it’s not too late to consider a profit-sharing contribution for 2021 that could be used as a deduction on your business income taxes. If you don’t have a plan in place yet, but want to explore the opportunity OR you have a plan in place but it needs a refresh, we are here to help. Reach out to me and we can sit down and evaluate what best suits the needs of you and your team.





Written by Matt Kruckenberg, Manager of Retirement Plan Services. Matt can be reached at 614-907-8639 or matt.kruckenberg@josephgroup.com