Questions? Call us: (614) 396-7652
A standard profit sharing plan gives everyone the same percentage. A new comparability plan lets owners receive a much higher rate than staff, often 80% or more of the total, while still passing IRS testing.
The profit sharing design built for owner-heavy firms.
A free profit sharing illustration for your business
A new comparability (or cross-tested) profit sharing plan divides employees into groups and gives each group a different contribution rate. Instead of testing the contributions themselves, the IRS tests the retirement benefits those contributions will produce.
Because an older owner’s contribution has fewer years to grow, it is allowed to be larger. That lets owners receive the maximum while younger staff receive a smaller, but still meaningful, contribution.
| Pay | Profit sharing rate | Profit sharing contribution | |
|---|---|---|---|
| Owner, age 55 | $360,000 | About 13% | $47,500 |
| Four employees, average age 30 | $50,000 each | 5% | $2,500 each, $10,000 total |
| Share going to the owner | About 83% |
With a standard plan giving everyone the same rate, the owner would need to give staff about 13% of pay to receive the same $47,500, more than double the cost.
Hypothetical example for illustration only. Actual contributions are set by the plan’s actuary and depend on age, compensation, employees, and plan design.
From first call to first contribution, we handle the design, the math, and the compliance.
1
We look at your income, age, staff census, and current plan to see what’s possible.
We layer your 401(k), profit sharing, and cash balance plan around your tax goals.
You get a clear illustration of your deduction, your savings, and your staff cost before you commit.
Plan documents, annual actuarial work, testing, and filings, handled every year.
It works especially well when you’re not much older than your staff but pay is very different, and it pairs naturally with a cash balance plan.
New comparability profit sharing is Layer 2 of the The Retirement Plan Stack. It sits on top of your 401(k) and, for owners who want to go further, underneath a cash balance plan. When combined with a cash balance plan, owner profit sharing is usually limited to about 6% of pay, and the two plans are tested together.
Michael, a successful business owner with no employees, wanted to maximize his retirement savings while minimizing taxes.
Through a custom-designed retirement plan stack, he and his wife were able to contribute over $575,000 across multiple plans in a single year.
This strategy not only helped secure their financial future but also generated over $222,000 in immediate tax savings, significantly increasing their cash flow and long-term wealth-building potential!
James runs a construction company with high employee turnover and wanted a way to protect cash flow while maximizing retirement contributions.
Through a custom 401(k) and profit-sharing plan design, we used strategic eligibility and vesting schedules to limit costs from short-term employees while allowing ownership to maximize contributions.
This strategy protected company assets, controlled expenses, and helped James build significant retirement wealth.
Eileen, a small business owner, needed a low-cost retirement plan that would meet state mandate requirements while helping her recruit and retain high-quality employees.
Eileen used a customized 401(k) solution focused on minimizing expenses, giving Eileen a competitive edge in hiring without pulling resources away from reinvesting in her growing business.
By using tax credits, her design allowed her to stay compliant, attract top talent, and keep her financial priorities aligned.
*These are hypothetical clients with hypothetical situations and plan designs.
Learn more: Employee Costs | The Retirement Plan Stack | Tax Strategies for Business Owners | Professional Firms | About Us
It is a profit sharing plan that gives different groups of employees different contribution rates and is tested on the retirement benefits those contributions provide. It lets owners receive a higher rate than staff.
Yes. New comparability is the most common type of cross-tested profit sharing plan.
Usually at least 5% of pay for eligible staff, or one-third of the highest owner rate if that’s lower. A safe harbor contribution can count toward it.
Often yes. The owner defers $24,500 and receives a $47,500 profit sharing contribution, plus catch-up contributions at 50 and older, as long as the plan passes testing.
It works less well, because the design relies on owners being older or paid much more than staff. We’ll test your census to see if it fits.
Yes, usually through a plan amendment. We review your current plan document and census first.
Generally by your business tax return due date, including extensions, so you can decide the amount after the year ends.
Life, Inc. Retirement Services does not offer tax advice. Please always consult your tax professional about your eligibility for tax credits.
Life, Inc. Retirement Services is a Registered Investment Advisory Firm of the state of Ohio and licensed in Florida and Maryland. All emails and communication are meant to be informative and educational and should not be considered a sale of security until proper notification and disclosures are given.