First, let’s clarify the plans you can offer. You can set up a stand-alone profit-sharing plan, standalone 401(k) plan, or a profit-sharing plan combined with a 401(k)-retirement plan. With those options in mind, you’re ready to tackle some details so you understand the differences:
With a stand-alone profit-sharing plan, your team members don’t contribute anything. This plan is just for you to share a percentage of your company’s profits with your team.
With a traditional 401(k) plan, your team members can contribute to their retirement savings with your company matching their savings up to a certain salary percentage.
With a combined profit-sharing and 401(k) retirement plan, your team members can contribute to their retirement accounts, and on top of that, you can contribute to their retirement accounts based on your profits. But instead of a match, you choose how much (if anything) to contribute each year.