^^^^ IT IS TRUE! Setup a company/LLC :)
I have an S-corp set up. I am an owner, I am an employee.
I set up a solo-401K. I, the employee can contribute up to $17,500 from my annual pay into the 401K (unless you are 50 or over, you can add $5500 to that amount). This amount is not subjected to federal income tax. It is however subjected to FICA and Medicare tax on both the employee and employer side. So yes, whatever federal tax bracket I can say I gain instantly
On the business owner side, if you are a sole proprietor or single member LLC, you can contribute another 20% of the employees salary to the profit sharing portion of the Solo 401K, In my case it's 25% because I am not a sole proprietor.
Example, My company pays me a salary of $100,000K annually. The company can make a profit sharing contribution of $25,000 to my Solo 401K completely tax free. I, the employee can also make an elective deferral of up to $17,500 to the solo 401K from my salary, reducing my taxable income level by that amount. (The maximum total annual contribution of both cannot exceed $52,000 annually)
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---401(k)-and-Profit-Sharing-Plan-Contribution-Limitshttp://www.irafinancialgroup.com/solo401kcontributionlimits.phpIt's best to max the profit sharing side first if you can't do both. Reason being? It's a 100% tax free deduction on the business side, no FICA, no medicare, no federal or state taxes... :)
So I would say, on the profit sharing side, the instant tax savings is rather large, 6.2% FICA tax on the employee side, 6.2% FICA tax on the employer side, 1.45% Medicare tax on the employee side , 1.45% Medicare tax on the employer side plus federal tax and state taxes, the savings is close to 35%. To me, that's an instant 35% return on investment!
Both profit sharing and elective deferrals can be made at anytime. The profit sharing contributions can be made up to the tax filing deadline of 2015 as well