Business owners often ask: “How much can I really put away for retirement?” With contribution limits rising in 2025 and new SECURE 2.0 rules reshaping catch-up contributions, the answer is: more than ever but, only if the plan design is strategic. Profit sharing is the lever that can turn a good plan into a powerful retirement-savings engine, helping owners accelerate their wealth, reward employees, and stay compliant in a changing regulatory landscape.
Profit sharing plans are generous, flexible and strategically powerful. Employers can choose among several allocation strategies:
- Pro Rata: Everyone gets the same percentage of pay.
- Integrated with Social Security: Allows higher allocations for higher earners.
- New Comparability / Cross-Tested: Maximizes owner and key employee contributions while controlling overall cost.
The right strategy ensures contributions are fair, compliant, and aligned with company goals.
What’s New for 2025–2026
- Higher contribution limits: Employees can defer up to $23,500 in 2025, plus $7,500 catch-up (or $11,250 for ages 60-63). Combined employer + employee contributions can reach $70,000+.
- Mandatory Roth catch-up for high earners: Starting in 2026, catch-ups for those earning $145,000+ (indexed) must be Roth. Plan sponsors need to prepare payroll and plan documents now.
- Long-Term Part-Time employee eligibility: More part-time workers may need to be included starting in 2025 (2 years of 500 hours). This affects how allocations and compliance testing are designed.
These changes make year-end profit sharing contributions even more valuable for owners looking to maximize deductions and savings before rules tighten further.
What to Do Next
October is a great time to plan for a year-end profit sharing contribution. Advisors: don’t wait until December chaos. Sit down with your business owner clients now to review:
- Contribution goals for 2025 (especially owners nearing retirement).
- Allocation strategy fit.
- SECURE 2.0 updates and compliance steps.
With the right design, a profit sharing plan can go beyond the match and supercharge contributions (especially for business owners.)