Originally Posted by bizlady
I have a retirement small business (sole proprietor) and recently opened a solo 401k plan. I know that I can as a business contribute up to 25% of the net profit (plus the $17500)
It seems pretax income IRA deduction (I take a salary), or a deduction from the business earnings which reduces income by 5K, has the same net effect. What am I missing?
As a sole prop you can contribute up to about 19% of you net profit (plus the 17500) to a Solo 401k.
The contribution from the business would reduce your payroll taxes, whereas the IRA contribution wouldn't. Also, there are many differences between 401k's and IRA's (early withdrawal rules, protection from liability claims, etc.).
To me it looks like the 401k contribution is the better choice.