401k: ESP and a Solo, can I make employer contributions?

[aschmidt2930]

I currently have an employer sponsored 401k that I contribute to the limit, with about 3k in employer matching. I also do some work on the side, and do not currently have a Solo 401k.  My understanding is that one can have both, but the total can't exceed IRS limits. 

Here's my question: Within a Solo 401k, can I still contribute the 25% of income employer contributions allowed?  To use an example, if I have 20,000 in self-employment income, can I deduct another $5000?

[SeattleCPA]

Yes, that's the way it works.

Also, you might want to consider a SEP (which also allows the 20% or 25% match) because it allows for more flexibility than a 401(k) in some respects.

BTW, the 25% is after the 25%... so really you can make a $4K contribution on the $16K of "after 25%" profits.

Another way to say the same thing is that for sole proprietors and partners in a partnership, the percentage actually equals 20%. Sort of.

P.S. This is really esoteric, but check out the permanency requirement discussion in this post to understand the sort of issue that people sometimes miss and then regret missing:

http://evergreensmallbusiness.com/hidden-small-business-pension-plan-costs/

[aschmidt2930]

Yes, that's the way it works.

Also, you might want to consider a SEP (which also allows the 20% or 25% match) because it allows for more flexibility than a 401(k) in some respects.

BTW, the 25% is after the 25%... so really you can make a $4K contribution on the $16K of "after 25%" profits.

Another way to say the same thing is that for sole proprietors and partners in a partnership, the percentage actually equals 20%. Sort of.

P.S. This is really esoteric, but check out the permanency requirement discussion in this post to understand the sort of issue that people sometimes miss and then regret missing:

http://evergreensmallbusiness.com/hidden-small-business-pension-plan-costs/

Excellent, thanks for the thorough response, it's very appreciated.  It seems opening a SEP IRA/Solo 401k will make a huge difference in the amount of the side hustle income I'll be able to keep,