Everyone wants to save taxes.  Well here is a solution to defer taxes, which in the long run may save you taxes - feel free to contact us to learn more about the basic strategy of retirement planning.

Strategy: Set up a solo 401(k) plan. Due to special tax rules, you can contribute more to this type of plan than other comparable retirement plans.  In fact, a solo 401(k) offers an unprecedented tax-saving opportunity for a married couple working together.

Lets look into this strategy... For starters,you can elect to defer up to $17,500 in salary to a 401 (k) plan (in both 2013 and 2014). Plus, if you're age 50 or older, you can kick in an extra $5,500 for a maximum deferral of $23,000.

The deferrals may be complemented by matching employer contributions subject to other limits.
Under the usual rules for defined contribution plans—such as SEPs and profit-sharing plans—the deductible contribution for 2013 is capped at the lesser of: (1) 25% of salary compensation or 20% of net self-employmentincome or (2) $51,000 ($56,500 if age 50 or older).

For 2014, the maximum contribution limits go up slightly to $52,000 and $57,500, respectively. Also, the maximum compensation that may be taken into account for these purposes is $255,000 for 2013 and $260,000 for 2014.

But here's where solo 401(k)s have an edge. The limits for defined contribution plans still apply, but elective deferrals to a solo 401(k) by the business owner don't count toward the 25% cap. What's more, this rule extends to the business owner's spouse.

When you combine employee contributions with employer contributions, a married couple using a solo 401(k) can hit the jackpot.

Tax benefits of going solo
Here is an example: Say you and your spouse are both 55 years old. You earn $120,000 a year from your incorporated business, while your spouse earns $60,000 annually.

Let's see how the maximum contributions break down, based on 2013 figures, for you (employee No. 1) and your spouse (employee No. 2). This assumes you can allocate a large part of your compensation to retirement savings.

Employee No. 1: You can defer $23,000 to the 401 (k) plan plus arrange a maxi-mum employer contribution of $30,000 (25% of $120,000). That's a total contribution of $53,000.

Employee No. 2: Your spouse can defer $23,000 to the plan plus your company can add another $12,500 (25% of $50,000). Thus, your spouse's total contribution is $35,500.

In other words, the two of you can set aside $88,500 ($53,000 + $35,500). If you continue the same pattern for 10 years and earn an 8% annual return, you will have amassed a staggering $1,336,964 in a relatively short time!

If the business isn't incorporated, the 25%-of-compensation cap on employer contributions is reduced to 20% because of the way that contributions are calculated for self-employed individuals. But that still leaves you with plenty of room to maneuver.

For instance, if your net self-employment income is $125,000, you can still stash away up to $48,000 ($23,000 + $25,000) in the account.

Finally, a solo 40I(k) plan may offer other advantages, such as the ability to make hardship withdrawals or take out a loan. In addition, you might roll over funds tax-free from another qualified plan to your solo 401(k) if you previously worked somewhere else.

Tip: Contributions are discretionary, so you can cut back on the match, or skip it entirely, in a down year for the business.