Thanks!
So for round numbers, if one estimated consulting income at 100k, and wanted to front load the contributions but then the actual income was less at the end of the year...
It almost seems that it would be safe to do the max contribution only after one reaches it.
Which is fine too just trying to understand better,
First, there are two parts to a solo/individual 401(k) plan: the employee/individual portion and the employer contribution/match. The employee is the standard $18K/year. The employer depends on your org type but is generally about 20% of net income with a max of $36K ($54K total). Remember net income takes out business expenses and some other things, so it it less (sometimes a lot less) than your gross income.
Like many things with self-employment, you're more on your own for solo 401(k)s. If you expect $100K and (depending on your org type and some other factors) dump the max employer portion in early and then don't actually hit the $100K, you'll have to go through paperwork to essentially pull out the difference. It can be a PITA because of the paperwork and it also can complicate your taxes.
Keep in mind any contributions that have been made to your employer's 401k that year -- both individual contributions and any employer match. Those reduce your solo 401(k) maxes. IOW, the $18K individual contribution max is across ALL 401(k)s and same with the employer contribution limit.
If you are married and your spouse contributes to the business, he/she can also get in on your solo 401(k) for a whopping $108K tax deferred if you have high enough income.
What I do is track my YTD net income and subtract out a little buffer. First I fill up each of the two (me + spouse) $18K employee buckets first. Then I start tracking net income minus the buffer and minus the $36K. I periodically do employer contributions to 20% of that, filling my $36K bucket first then my partner's. So, like you said, I only contribute up to what I've actually made, I don't front-load it all in anticipation of expected income.
That also helps avoid any draw to try to time the market via timing contributions. I use Vanguard and it's free and easy, although I believe admiral shares and their slightly lower management fees are not available.
As someone else pointed out, once plan total exceeds $250K, you have to file form 5500 annually.
Unless you expect to have higher income in retirement, or tax rates to be substantially higher in retirement, you are probably better off doing a traditional tax-deferred 401(k) first, then maybe a ROTH IRA second. Keep in mind that Roth 401(k)s don't have many of the benefits of Roth IRAs. For example, Roth 401(k)s have RMDs unlike Roth IRA.
