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Profit Sharing

Profit sharing can be a powerful employee benefit,
helping your employees prepare for a successful retirement and potentially boosting employee retention and job satisfaction.

A well designed 401(k) plan with profit sharing plan lets owners and executives steer more compensation toward select employees in a tax-efficient manner, allowing the business to pay less in taxes

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Travis Tandy CEO & President of Tandy Consulting Inc
Tandy Consulting Inc. -- Profit Sharing (2025/2026)
White Paper → Web

Profit Sharing: 5 Key Items to Consider

Updated for plan year 2025 (with 2026 outlook). We help small and mid-sized employers design tax-efficient profit sharing integrated with a 401(k).

Guideline partner • Fractional CFO advisory • Retirement plan design support

Align pay & performance

Reward owners and top performers while remaining compliant.

Tax-efficient

Shift compensation into deductible employer contributions.

Compliance support

Nondiscrimination testing & design guardrails.

Plan design expertise

Traditional • Age-weighted • New comparability.

Key IRS limits (2025) and outlook (2026)

2025 limits are official. 2026 amounts are forecasts--final IRS numbers typically publish late fall.

Elective deferral (401(k)/403(b) salary deferrals) -- IRC §402(g)

$23,500 (2025)

Catch-up (50+): $7,500 (2025). Ages 60--63 may have higher catch-up once finalized under SECURE 2.0.

Total additions (employee + employer) -- IRC §415(c)

$70,000 (2025)

Per-employer limit; separate from catch-up contributions.

Confirm limits in your plan documents and current IRS guidance.

Example

Sally earns $60,000. A 10% profit-sharing allocation adds $6,000 to her retirement account--funded by the employer, separate from her own deferrals.

✔ Employer deduction; employees build larger balances.

Max-Out Visuals: 401(k), 403(b), 457(b), and Combinations

Use the sliders/inputs to see how wages and plan type interact with the 2025 limits your plan supports. Employer contributions shown are constrained to 25% × W-2 Box 1 and the $70,000 annual additions cap (catch-up excluded).

Employee deferral limit
$23,500
Employer max (25% × wages)
$46,500
Annual additions cap
$70,000
Total (401(k)/403(b))
--
Add 457(b) Deferral (separate cap)
--
Scenario Employee Employer Total
401(k) $23,500 $46,500 $70,000
403(b) $23,500 $46,500 $70,000
457(b) separate cap $23,500 $0 $23,500
401(k) + 457(b) $47,000 $46,500 $93,500
403(b) + 457(b) $47,000 $46,500 $93,500

Notes: 457(b) deferrals are in addition to 401(k)/403(b) limits when both plans are available (generally public sector/non-profit). Employer contributions do not apply to governmental 457(b). Plan documents control eligibility, match formulas, and testing. Catch-up contributions (50+) are separate and not shown here.

The 5 Key Items to Consider

1) Define your goals

Maximize tax-efficient contributions, retain talent, reward key groups, or broaden profit participation. Clear goals drive the right plan design.

  • Boost owner and highly-compensated employee savings
  • Retention and performance alignment
  • Business tax optimization

2) Choose a plan design

Three common approaches: Traditional (same % for all), Age-Weighted (higher % for older employees), and New Comparability (custom groups).

  • We model allocations across scenarios
  • Target groups as narrow as one employee
  • Stay within nondiscrimination limits

3) Coordinate with your 401(k)

Profit sharing is employer-funded and pairs well with a 401(k) to reach the §415(c) annual additions limit.

  • Employee deferrals + employer profit sharing
  • Potential for higher total savings vs. deferrals alone
  • Works with pre-tax and Roth deferrals

4) Administration & compliance

Expect eligibility tracking, allocation calculations, and testing (ADP/ACP and coverage). We help minimize risk with calendar-based workflows.

  • Nondiscrimination & coverage testing cadence
  • Ongoing workforce data checks
  • Documentation & participant comms

5) Work with an experienced advisor

Leverage design expertise, testing support, and recordkeeper coordination. As a Guideline partner, we streamline implementation and operations.

  • Allocation modeling and "what-ifs"
  • Quarterly testing reviews
  • Transparent, flat advisory pricing

FAQs

Do we need a 401(k) to offer profit sharing?

Not strictly -- but most small employers integrate profit sharing into a 401(k) because it's familiar to employees and makes reaching the annual additions limit more attainable.

How are allocations set?

Your plan document defines eligibility, groups, and formulas. We model designs to meet your goals while passing required coverage and nondiscrimination tests.

What about age-based or role-based contributions?

Age-weighted and new-comparability designs can tilt allocations toward older or key groups -- within IRS rules. We'll show trade-offs before you decide.

Are catch-up contributions included in the $70,000?

Catch-up contributions for participants age 50+ are in addition to the §415(c) annual additions limit. Confirm specifics in your plan.

Tandy Consulting Inc. • Tax & Accounting Professionals

Informational only; not legal, tax, or investment advice. Confirm features and limits with your third-party administrator, recordkeeper, and counsel.

2025 S-Corp 401(k) Match Calculator

A Simple Guide for S-Corp Owners Who Want to Maximize Their Retirement Savings

This tool helps you understand how much you can contribute to your 401(k) for the year, and how close you are to reaching the IRS maximums. If you're an S-Corporation owner who pays yourself W-2 wages, the rules are different from traditional employees -- and this calculator breaks everything down into simple steps.

2025 S-Corp 401(k) Match Calculator

Assumes employee elective deferral limit of $23,500 and total 401(k) limit of $70,000 with a 25% employer contribution cap.

1. Enter Year-to-Date Amounts

2. Box 1 Wages & Elective Deferrals

Calculated Box 1 wages (Gross − Pre-tax only):
$0.00
Employee elective deferrals (Pre-tax + Roth):
$0.00
Remaining room to $23,500 limit:
$0.00

3. Employer Match / Profit Share Capacity

IRS max employer contribution (fixed): $46,500.00
Max employer contribution (25% of Box 1): $0.00
Employer allowed (lesser of above): $0.00
Employer match remaining available: $0.00
Total contributions so far (Pre-tax + Roth + Employer): $0.00
Total if employer contributes full allowed amount: $0.00
Remaining room to $70,000 overall limit: $0.00
Progress toward $70,000 total contribution goal:
0% of $70,000 goal reached

4. Wages Needed to Fully Maximize $70,000

Target Box 1 wages required: N/A
Equivalent gross wages (Box 1 + current Pre-tax deferral): N/A

Advanced Detail Breakdown

Pre-tax deferrals (YTD): $0.00
Roth deferrals (YTD): $0.00
Total employee deferrals: $0.00
Employer contributions (YTD): $0.00
Counted toward $23,500 limit: $0.00
Remaining room to $23,500 limit: $0.00
Remaining room for employer match: $0.00
Pre-tax vs. employer match vs. lost opportunity:

Disclaimer: This calculator is for general informational purposes only and does not constitute financial, tax, or legal advice.

What does this calculator actually do?

It calculates your employee contributions, employer contributions, remaining room to IRS limits, and whether you're on track to maximize the $70,000 total 401(k) limit for 2025. It automatically applies S-Corp rules, including the 25% employer match cap based on your Box 1 wages.

What are "Box 1 wages" and why do they matter?

Box 1 wages are your taxable wages after subtracting any pre-tax 401(k) contributions. These wages determine how much employer match or profit-sharing you're allowed to receive. The calculator computes Box 1 for you.

How much can I contribute as an employee?

You can contribute up to $23,500 in 2025 between pre-tax and Roth 401(k). The calculator shows:
• How much you've already put in
• How much room you have left
• Whether you're approaching the employee limit

How does the employer contribution work?

As an S-Corp owner, your business can contribute up to:
• 25% of your Box 1 wages
• Up to $46,500 for 2025

The calculator shows your max allowed employer contribution, how much you've already added, and how much "match" is still available.

What is the $70,000 combined limit?

The IRS allows a combined maximum of $70,000 in 2025 for:
• Employee contributions
• Employer match / profit-sharing

The calculator shows where you currently stand relative to that limit and how much room remains.

What does the progress bar and chart show?

The progress bar shows how close you are to reaching the full $70,000 limit. The chart visually breaks down:
• 🟢 Your pre-tax contributions
• ⚪ Employer match already contributed
• 🔴 Lost opportunity (available employer match not yet used)

Why is this important for year-end planning?

S-Corp owners must plan contributions around W-2 wages. This tool helps you decide if you should:
• Increase wages
• Boost employee or employer contributions
• Time contributions before year-end

Ultimately, it helps you maximize tax-advantaged retirement contributions with clarity.