Individual 401(k) limits

[kristof]

I work full time and also consult on the side. I do the consulting through an LLC taxed as a sole proprietorship. Because I don't have a 401(k) through my full time employer, I was thinking of setting up an individual 401(k) through my LLC. I'm trying to figure out what the contribution limits would be. I'll make roughly $10k in profit this year through the consulting business. If I'm understanding it correctly, I can put all of that into the 401(k) because the employee contribution limit is $17,500 - it's sort of like paying myself all of the profit as salary and then putting 100% of the salary into the tax-advantaged account. Is that correct? Does anyone do anything similar and are there any gotchas to look out for, or reasons not to do this?

[Lkxe]

http://www.irs.gov/Retirement-Plans/One-Participant-401%28k%29-Plans

[bacchi]

You need to make $18950 to put in $17,500 due to self employment tax. With your $10k this month, you can put in $9235 and the rest goes to eftps.gov.