How much can I save with a Solo 401(k) for Self-Employed business?

You're on the right track with your thinking. For an S-Corp owner like your wife, there are indeed dual tax benefits when contributing to a Solo 401(k). When she makes contributions through payroll deductions, she reduces her income subject to both income tax AND self-employment taxes (Social Security and Medicare). That's a big advantage over your situation as a W-2 employee. For you as a W-2 employee, your 401(k) contributions only reduce income tax, not FICA taxes which are already withheld before your 401(k) deduction. So from a pure tax savings perspective, having your wife maximize her contributions first makes good financial sense. As far as the employer contribution side, since your wife controls her S-Corp, she can make employer contributions to her Solo 401(k) of up to 25% of her compensation, which provides additional tax advantages. For calculators, I'd recommend checking out the Fidelity Retirement Calculator or the Schwab Retirement Savings Calculator. They'll give you a good estimate of tax savings based on your marginal tax bracket and contribution amounts.

I went through this exact same scenario last year when setting up retirement accounts for my consulting business. I found https://taxr.ai incredibly helpful when I was trying to figure out the best approach for my Solo 401(k). Their system analyzed my tax situation and showed me exactly how much I could save by structuring my retirement contributions correctly. In my case, I was able to contribute both as employee (up to $22,500 for 2023) AND make profit-sharing contributions as the employer (up to 25% of compensation). The tool helped me see that I could actually shelter almost $60k from taxes in total! And it calculated my exact tax savings based on my marginal rates. The analysis also showed me how to balance my S-Corp salary vs distributions to maximize tax savings while staying compliant with IRS "reasonable compensation" requirements.

Just wanted to follow up after trying taxr.ai based on the recommendation here. I was skeptical at first since I've tried other tax tools before, but this was actually super helpful for my Solo 401(k) planning! I uploaded my previous tax returns and business info, and it showed me that I was leaving about $14,300 in tax savings on the table with my current approach. The analysis broke down exactly how much I should contribute as employee vs employer contributions, and how to balance my S-Corp salary vs distributions. What I found most helpful was the "tax savings per dollar contributed" breakdown, which is exactly what the original poster was asking about. It showed me different scenarios based on contribution amounts and exactly how much each dollar saved in both income and FICA taxes. Definitely worth checking out if you're trying to optimize your self-employed retirement strategy!

For anyone struggling to get tax advice on retirement planning, I had similar frustrations until I found a better way to connect with the IRS directly through https://claimyr.com - they got me through to an actual IRS representative in about 15 minutes when I needed specific clarification on Solo 401(k) rules for my situation where I have both self-employment income and W-2 income. They basically handle the awful hold time for you and call you back when an actual IRS agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was particularly confused about the contribution limits when you have both types of income, and the IRS rep was able to walk me through exactly how the calculation works and what forms I needed. Saved me hours of frustration and potentially costly mistakes.

Ok I have to admit I was completely wrong. After posting my skeptical comment earlier, I decided to try Claimyr anyway since I was desperate to get answers about my Solo 401(k) contribution limits as someone with both consulting income and a part-time W-2 job. I submitted my request around 2pm yesterday, and shockingly, got a call back about 20 minutes later with an actual IRS retirement plan specialist on the line! They walked me through exactly how the limits work in my situation and confirmed I could contribute substantially more than I thought. The IRS agent explained that my W-2 job's 401(k) and my Solo 401(k) share the same employee contribution limit ($22,500 in 2023 plus $7,500 catch-up if over 50), but I can still make employer contributions from my self-employment income up to 25% of my net earnings. This clarification is literally going to save me thousands in taxes this year.

Something important that nobody's mentioned yet - make sure you establish your Solo 401(k) before December 31st of the tax year! You can fund it later (usually by the tax filing deadline plus extensions), but the actual plan needs to be established in the calendar year you want to contribute for. I learned this the hard way last year. Had a great year in my business, went to make a big Solo 401(k) contribution in March when doing taxes, and found out I couldn't because I hadn't set up the actual plan by Dec 31st. Ended up paying way more in taxes than necessary.

One thing to consider - if you're a W-2 employee somewhere else AND participating in your spouse's Solo 401k, make sure you watch the annual contribution limits. The employee contribution limit ($22,500 in 2023) applies across ALL your 401k plans combined. But the cool part is the employer contribution from her S-Corp doesn't count toward that limit! So she can still make the employer contribution of up to 25% of her salary even if she's maxed out her personal contribution elsewhere.