rtlexx wrote:Okay, so for 2013, I can contribute $17,500 to my employer's 401K plan. And for my individual 401K, I can contribute up to 51K (combined total of employer and employee contributions). I assume that's $25,500 for employer contribution and $25,500 for employee contribution. Is that correct?
Now another question. Assuming all of my contributions are pre-tax, can I use the combined total of $68,500 to deduct from my annual taxes?
No, that's not correct. Your scenario would have you making 17.5K + 25.5K in employee contributions to all your 401k plans. This exceeds the 17.K limit in employee contributions to 401k plans.
At your main job:
Employer 401(k) employee contribution: $17,500 (this maxes out your employee contributions to all 401k plans).
Your self employed business:
Individual 401(k) employee salary deferral: ZERO
(because you've already maxed out the employee contribution in the other plan).
Individual 401(k) employer profit share: up to 51K (if incorporated 25% of self employed W-2 income, if schedule C 20% of net business income).
You would need self employed W-2 income of around 200K or schedule C net business income of 250K to max out the employer contribution for 51K.
Assuming you have sufficient self employment income to max out Individual 401k for 51K, and all contributions were Traditional then all 68.5K would be tax deductible. These tax deductible contributions reduce your Adjusted Gross Income (AGI) which reduces your taxable income which in turn reduces your tax liability.