Confused about how to contribute to solo 401k as a work from home solo person

[lilybluerose]

Hello, I am hoping someone here can shine some light on this. I work from home, and have my own business. I just started saving for retirement a couple of years ago. I have a roth IRA that I max out each year, and started a solo 401k a couple of years ago without contributing much. Both are through vanguard.

When I go to add money to the 401k it says to put it in either " employee salary deferral vs employer contribution "

I am confused on where to put it. I briefly spoke to my accountant two years ago when I opened it ( I havnt been funding it because I was saving for a new mortgage) and he said "

The amount you can contribute to a 401k is directly related to the salary you take from your business. You can contribute up to $18,000 of salary to your 401k. 

You will end up doing the Employer Contribution. 

It may be advantageous to not take that large of a salary, which will limit your contributions."

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So I am guessing that I just contribute up to 18,000 (belive it's 19500 this year?) then as employer contribution. If I want to add more I then put it in the other one?

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Thanks!

[terran]

The comments about "taking a salary" probably mean you have a corporation or LLC taxed as an S-corp?

[ixtap]

You can contribute up to the IRS limit ($19.5k, if you are under 50) from your salary as EMPLOYEE DEFERRAL.

After that, you can contribute... I think it is 25% of your business income as EMPLOYER CONTRIBUTION, up to $57k. This is basically your own equivalent of an employer match program.

Each may have different tax implications, so it is worth checking in with your accountant again once you have a better understanding of the terms.

[lilybluerose]

Yes I file as an llc as s Corp

[terran]

In that case you can contribute up the salary deferral limit (2020 = $19.5k) or your total salary as an employee and up to 25% of your salary as an employer profit share up to a total between both limits of $57k. As your accountant says, you need to balance this with keeping your salary low to minimize social security and medicare tax (while still paying yourself a reasonable salary for the services you provide the business). The Qualified Business Deduction throws another complicating factor in their, but I'm not sure exactly how that works with an S-corp.

[lilybluerose]

So confusing to me :( is there a better way to save for retirement? The Ira is so easy lol.

I really can't wrap my head about this and tax stuff which is why I had to hire a company to do it for me.

Ty for the replies!