I'm not sure this is correct, everything I've read/discussed on this matter is that overall limit for 401k contributions is 53k regardless of source (deferral/employer match/profit sharing). Can you point to some other threads that suggest otherwise? If so, I'd love to know about it so I can put more into my own solo 401k since I also have employee income + self employment income this year.
http://whitecoatinvestor.com/beating-the-51k-limit-friday-qa-series/There are other threads on the net if you do some searching. See this from the IRS site directly too:
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-LimitsThe annual additions paid to a participant's account cannot exceed the lesser of:
1. 100% of the participant's compensation, or
2. $52,000 ($57,500 including catch-up contributions) for 2014 ($53,000, or $59,000 including catch-up contributions for 2015).
There are separate, smaller limits for SIMPLE 401(k) plans.
Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2014, $17,500. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $17,500. He has enough earned income from his business to contribute the overall maximum for the year, $52,000. Greg can make a nonelective contribution of $52,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately.
Maybe I am thinking about it too naively, but if my effective tax rate is, say, 25% or so after all the smoke clears on this tax maze nonsense the payback period on each extra dollar taxed (0.1% to 2.5%) should be 4 years. To me that seems like a favorable bet. Am I thinking about it the wrong way?
I'm not sure I understand what you are referring to w/ the payback period. The math happens up front, then everything grows in proportion. If you lop off 30% now or wait 10 years and lop off 30% then, it doesn't really matter. The presumed benefit is you avoid lopping of 39% now and instead lop off 25% in the future or whatever. Or if you die, then you lop off a lot less I think (I'm not familiar with what happens to pretax accounts upon death).
Well the math happens up front, during the investment period, and at the back. The time value of money would need to be applied. I'm assuming our taxes will be very low during the withdrawal period, but it is hard to know what the rate will be during those years. Looking at it like a project here is what I think the cash flows would look like:
Year 0 Investment - .1% to 2.5% * Earned Income Declared (call it $600k for giggles) == $600 to $15k....call this X
Year 1 Tax Savings - .25X
Year 2 Tax Savings - .25X
.
.
.
Year N Tax Savings - .25X - Withdrawal period tax rate * X
Look close? So we'd need to save enough in years 1 - N in today's dollars less what we pay in taxes in year N.