How to maximize small business 401k contribution?
My understanding is that to make the $18,000 elective deferral in this case, you need to pay yourself at least $18,000.  There will be some tax on that for social security and Medicare, so you'll actually need to pay yourself a bit more to cover that too. The employer contribution is limited to 25% of your total compensation.  The $18,000 above counts, but if you want to max out on the employer side, you'll need to pay yourself $140,000 salary since 25% of $140,000 is the $35,000 that you want to put into the 401k from the employer side. There are some examples from the IRS here that may help: https://www.irs.gov/retirement-plans/one-participant-401-k-plans I know that you're not a one-participant plan, but some of the examples may help anyway since they are not all specific to one-participant plans. According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it.  An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the   lesser of: 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 2015, $18,000. 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, $18,000. He has enough earned income   from his business to contribute the overall maximum for the year,   $53,000. Greg can make a nonelective contribution of $53,000 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. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits I would hire an accountant to help set this up, given the sums of money involved.  $53,000 would be the minimum amount of compensation needed to maximize the 401k. The total limit of contributions is the lesser of: 100% of the participant's compensation, or $53,000 ($59,000 including catch-up contributions) for 2015 and 2016. and they don't count contributions as compensation Your employer's contributions to a qualified retirement plan for you   are not included in income at the time contributed. (Your employer can   tell  you  whether  your  retirement  plan  is  qualified.) On the bright side, employer contributions aren't subject to FICA withholdings.
I can only address this part of it: For instance with a 10k net income, 9293 is the limit for 401k from employee. How is this calculated? I believe this limit is total for all sources too, which I'm confused about. How it's calculated is that when you are self-employed you also pay the employer portion of the FICA taxes.  This comes off above the line and is not considered income.  The 401k contribution limit takes this into account. Don't worry about minimizing taxes too much - worry about maximizing post-tax income.  Keep in mind that if you just got a job then it's likely that the taxes being automatically withheld are based on the assumption you've been earning this much all year, which could mean that you're likely going to be due a refund come April (basically, if you're making 100k/year, but only actually getting 20k this year, they'll still take taxes out as though you were making the full 100k).   If you're maxing out your 401K, you can also contribute to an IRA to reduce taxes (or contribute to a Roth to invest more if you max it out).   For investment I like Betterment, it's well diversified and avoids many common investment pitfalls.  Much better than a savings account, but you should also consider the need to have readily-accessible money in case of emergencies. On the statement it now tracks how much is contributed to the account   pre and post tax. This is the key. Your withdrawals will be proportional. Assuming you have contributed 90% in regular contributions (pre-tax) and 10% in Roth (post tax), when you withdraw $1000, it will be $900 from the regular (taxed fully) and $100 from the Roth (not taxed, assuming its a qualified distribution). Earnings attributed proportionally to the contributions. I agree with you that it is not the best option, and would also prefer separate accounts, but with 401k - the account is per employee. Instead of doing 401k Roth/Non-Roth consider switching to Regular 401k and Roth IRA - then you can separate the funds easily as you wish. You cannot contribute directly to that 401k account if you no longer work at the sponsoring company - you have to be on their payroll.  You can, however, roll the 401k over into an IRA, and contribute to the IRA. Note that in both cases, you are only allowed to contribute from earned income (which includes all the taxable income and wages you get from working or from running your own business). As long as you are employed (and have made more than $5k this year) you should have no problem. I am not certain whether contributing your $5k to a roth IRA would help you achieve your tax goals, someone else here certainly can advise. You will want to focus on how much is needed for retirement, and what types of investments within the current 401K offerings will get you there. Also will need to discuss non-401K investments such as an IRA, college savings, savings for a house, and an emergency fund.  The 401K should be a part of your overall financial picture, how much you invest in the 401K depends on the options you have (Roth 401K available), how much matching (some a little or a lot), and your family plans.  You have a few choices:  Your company through the 401K provider may provide this service. They may have limited knowledge in what non-401K funds you should invest in, but should be able to discuss types of investment. Fee only planner. They will be able to discus types of investments, and give you some suggestions. Because they don't work on a commission they will not make the investment for you. You need to be able to make the actual selection of investments, so make sure you get criteria to focus on as part of the package.  Commission based planner. Will make money off your investment choices. May steer you towards investments that their company offers or ones that offer them the best commissions in that investment type. If the 401K doesn't use funds that the planner can research you will need to provide a copy of the prospectus provided by the 401K. My suggestion is the fee only planner. They balance the limited focus of the 401K company without limiting themselves to the funds their company sells. Before sitting down with the planner get in writing how they fee structure works. A flat fee or hourly fee planner will be expecting you to do all the investment work. This is what you want. Let the fee only planner help you define your plan. But also reanalyze the plan every few years as your needs change. I use the self-directed option for the 457b plan at my job, which basically allows me to invest in any mutual fund or ETF. We get Schwab as a broker, so the commissions are reasonable. Personally, I think it's great, because some of the funds offered by the core plan are limited. Generally, the trustees of your plan are going to limit your investment options, as participants generally make poor investment choices (even within the limited options available in a 401k) and may sue the employer after losing their savings. If I was a decision-maker in this area, there is no way I would ever sign off to allowing employees to mess around with options. An experienced individual wouldn't ask such questions.  I don't say this to take a jab at you, but to provide context.  The matter is much more complicated than a simple answer to your question could accomplish. The short answer is no, not necessarily; but it depends on the details. Generally, if the employer matches, it's suggested that you take advantage of the match.  It's free money.  That said, it comes with some strings attached, like a vesting schedule.  It's not yours right away, necessarily.  Choices are limited in a 401k, but we should still come out ahead with that free money. The investment choices available in a 401k are also a part of the details.  If they meet your needs you should certainly consider the 401k even if the employer doesn't match. There is also the matter of one's particular tax situation, which is certainly an involved matter.  A 401k can certainly be a part of judicious tax planning.  It's a matter of working out the details. Continuing this theme of details and coming back to the employer match: if the employer doesn't mach, I would make sure that I'm maxing out an IRA before considering the 401k.  If the employer matched, I would probably contribute to take advantage of that match.  However, it quickly becomes complicated here.  I'm accustomed to employer matching up to some percentage of pay, which typically works out to be less then the anual contribution limits for a 401k.  So, I my plan for such a situation is to contribute up to the employer match in the 401k, then max out an IRA, and then return to the 401k to finish contributing up to its yearly maximum. There is plenty for you to consider in order to come up with a plan of action.  While it's certainly complicated, it's accessible to most people.  You don't have to be a genius.  In fact, eggheads are regularly trounced by the markets. If you were looking to maximize your ability to save in a qualified plan, why not setup a 401K plan in Company A and keep the SEP in B? Setup the 401K in A such that any employee can contribute 100% of their salary.  Then take a salary for around 19K/year (assuming under age 50), so you can contribute and have enough to cover SS taxes.   Then continue to move dividends to Company A, and continue the SEP in B.  This way if you are below age 50, you can contribute 54K (SEP limit) + 18K (IRA limit) + 5500 (ROTH income dependent) to a qualified plan.