Retirement Plan Options - Bennett Commercial Services

Plan design

Profit sharing in the 401(k)

Profit sharing to Daniel

401(k) safe harbor design

SIMPLE employer contribution

The business

Number of employees

Seven today, not counting Daniel.

Payroll for today's 7 staff

Pay per added employee

Daniel's W-2 salary

Only salary counts toward contributions, not distributions.

Assumptions

Plan year

Tax credits run for the first three to five years. Year 6 shows the long-run cost.

401(k) administration, per year

Plus $60 per employee and $1,500 setup in year one.

SIMPLE administration, per year

Staff who save enough for the match

Only matters for match designs.

Combined marginal tax rate

Daniel's total each year

Recommended

SIMPLE IRA

More into Daniel's account

More cost, after tax and credits

Net benefit to Daniel

The 401(k) path compared with the SIMPLE, each year. Net benefit is the extra money in Daniel's account, less the extra cost of staff contributions and plan administration after tax and credits.

Daniel's own deferral Company match or safe harbor Profit sharing to Daniel Staff match or safe harbor Staff profit sharing

To Daniel

SIMPLE IRA

Safe harbor 401(k)

To the team, company cost

SIMPLE IRA

Safe harbor 401(k)

Annual figures at 2026 limits. Bars share one scale, so the two groups compare directly.

Each year	SIMPLE IRA	Safe harbor 401(k)	Difference

Growing the team

401(k) + profit sharing vs the SIMPLE: net benefit to Daniel Profit sharing on its own: tax saved less staff cost

Staff profit sharing, after tax

Profit sharing cushion

Assumptions and how this is estimated

2026 limits: 401(k) deferrals $24,500; total per person $72,000; SIMPLE deferrals $18,100 (the higher limit for employers with 25 or fewer employees). Daniel is assumed to defer the maximum in either plan.
Staff payroll is an estimate for five technicians, a dispatcher, and an office manager. Replace it with actual W-2 figures for a real proposal.
Match designs assume participating staff save enough to earn the full match. Nonparticipants receive nothing under a match.
Staff profit sharing approximates the usual minimum for an owner-weighted design: the lesser of 5% of pay or one-third of Daniel's employer contribution rate, less any 3% safe harbor already given. A match does not count toward this minimum. Actual results depend on everyone's ages and pay and need to be tested by the plan administrator.
Tax savings apply the combined federal and North Carolina rate to Daniel's deferral and to all company contributions, which are deductible and reduce pass-through income. Interaction with the qualified business income deduction is ignored.
The contribution credit assumes staff pay is spread evenly and every employee earns under about $100,000. It runs at 100% in years one and two, then phases down through year five. The startup cost credit is counted separately, below.
Because Daniel owns 100% of the business, every contribution comes out of his cash flow. "Cash out of pocket" is everything contributed, less the tax it saves. "Net benefit" is the money in his account, less the after-tax cost of staff contributions. The contribution credit reduces the deductible amount by the same figure, and that is reflected.
Plan administration: the 401(k) figure covers the plan administrator, record-keeper, owner-weighted testing, and the annual filing, plus $60 per employee and $1,500 of setup in year one. The SIMPLE is assumed to cost $300 a year. These are estimates, not quotes.
Tax credits by plan year: the startup cost credit covers 100% of administration and setup costs for years one through three, up to $250 per non-owner employee (minimum $500, maximum $5,000). The contribution credit is up to $1,000 per employee at 100% in years one and two, then 75%, 50%, and 25%, and nothing from year six on. Credited amounts are not also deducted.
Added employees are paid the amount set above, are treated as eligible right away, and are not highly compensated. The proposed one-year eligibility wait would delay their cost, so this is conservative. Above 25 total employees, the SIMPLE deferral limit drops to $17,000 unless the company raises its contribution to a 4% match or 3% for everyone.
Growing the team: the cushion is the tax Daniel saves on his profit-sharing dollars, less the after-tax cost of the profit sharing staff must receive and about $1,000 a year of extra testing cost. It ignores the temporary credits, so it reflects the long run. Break-even is the first headcount where the cushion turns negative.
Growing the team, plan versus plan: the navy line is the 401(k) with profit sharing less the SIMPLE on the net benefit measure in the table (into Daniel’s account, less total cost after tax), at the plan year selected. The SIMPLE pulls ahead where that line crosses zero. Each added employee is paid the new-hire salary above.
Company contributions are capped at 25% of total eligible payroll, the deduction limit for a 401(k) with profit sharing.

Our recommendation

A safe harbor 401(k) with profit sharing, starting January 2027

It lets Daniel save close to the maximum in good years and pull back in lean ones. It also treats the team well and leaves the business better positioned for an eventual sale.

Far more room

Up to $72,000 a year for Daniel, compared with about $23,500 in a SIMPLE. At current profit levels, that difference matters every year for the next 15.

Flexible when cash is uneven

Only the 3% safe harbor is fixed. Profit sharing is decided after each year closes, so it can follow how the business actually did.

Keeps the team, helps a sale

Vesting on profit sharing rewards technicians for staying. An established plan is also something a future buyer can keep in place.

Proposed design

3% safe harbor to every eligible employee. Predictable, fully vested, and it counts toward the staff minimum for profit sharing. We prefer it to a match.
Discretionary, owner-weighted profit sharing. Aim for Daniel's full $72,000 in good years and reduce it when cash is tight.
Six-year graded vesting on profit sharing.
Eligibility at age 21 and one year of service, which keeps new-hire turnover from adding cost.
Roth deferrals and automatic enrollment, which adds a $500 annual credit for three years.
Hand off investment selection and administration to limit Daniel's fiduciary responsibilities.
Watch headcount. At current settings, profit sharing pays for itself up to about 21 employees. The team-growth chart above shows where that line falls.

Next steps

OctoberGather staff pay, birth dates, and hire dates. Request proposals and a testing illustration from two or three plan administrators.
NovemberChoose a provider, confirm the design with Daniel's accountant, and sign plan documents.
Early DecemberSend staff notices and set up payroll.
January 1, 2027Plan starts and deferrals begin.
Early 2028, then every yearSet the profit-sharing amount once the year's results are in, and check headcount against the break-even.
OptionalTalk with the accountant about a profit-sharing contribution for 2026, which can be adopted up to the business's tax return deadline.

The basics

How the two plans differ

The SIMPLE is easy and inexpensive, but it has a fixed ceiling. The 401(k) costs more to run and asks for a firmer commitment to staff. In return it roughly triples what Daniel can put away, and he can flex it year to year.

Path one

SIMPLE IRA

Lower ceiling. Up to $18,100 of employee deferrals in 2026, plus the company contribution.
Required company money, every year. A dollar-for-dollar match up to 3% of pay, or 2% of pay for every eligible employee. The match can drop to 1% in two of any five years.
Vests immediately. No vesting schedule to reward people for staying.
Simple to run. No annual testing and no Form 5500. Setup and fees are minimal.
Stands alone. No other plan can run alongside it, so profit sharing isn't an option.
Deadline. A new SIMPLE generally has to be set up by October 1 to count for that year.

Path two

Safe harbor 401(k), with optional profit sharing

Higher ceiling. $24,500 of deferrals and up to $72,000 per person in total for 2026. Roth deferrals and loans can be offered.
Safe harbor contribution. Either 3% of pay for every eligible employee or a match, fully vested. It replaces the annual fairness tests that would otherwise cap what Daniel defers.
Profit sharing is decided each year. The amount is set after year end, so it can shrink in a lean year. It can vest over as long as six years, which helps keep technicians.
Can be weighted toward the owner. An owner-weighted design directs more to Daniel as long as staff get a minimum, usually up to 5% of pay.
More to administer. It needs a record-keeper, a plan administrator for testing, and an annual Form 5500, and Daniel takes on fiduciary duties unless parts are handed off.
Helps with a sale. An established plan with vesting is an asset a buyer can keep.

For either plan

Startup tax credits

Startup cost credit. Covers 100% of setup and administration costs for three years, up to $250 per non-owner employee. With seven staff that's about $1,750 a year.
Contribution credit. Up to $1,000 per employee earning under about $100,000. It covers 100% in years one and two, then 75%, 50%, and 25%.
Automatic enrollment. Adds another $500 a year for three years.

For either plan

Timing from here

2026 is mostly closed. A new SIMPLE or safe harbor 401(k) with deferrals for this year generally needs to be in place by October 1.
Profit sharing only, for 2026. A profit-sharing plan can still be adopted up to the business's 2026 tax return deadline, including extensions. It would allow employer contributions only.
Realistic target. Choose the design this fall and start January 1, 2027. Staff notices for a safe harbor plan go out 30 to 90 days before the start.

A company plan built for the long view

A safe harbor 401(k) with profit sharing, starting January 2027

Far more room

Flexible when cash is uneven

Keeps the team, helps a sale

How the two plans differ

SIMPLE IRA

Safe harbor 401(k), with optional profit sharing

Startup tax credits

Timing from here

Considered, and parked

SEP IRA

Solo 401(k)

Cash balance plan