Apologize for any confusion. I also have a Solo 401k and wasn’t confused, but can see how others could be. I’ve published your comment so that others could benefit. Thanks!

To use the phrase “your pre-tax income ” is a bit misleading. And, in my case, this kind of language in a lot of solo 401K articles led to a big error on my part. I over-contributed to my solo 401K because I didn’t realize that contributions can’t be any more than your NET PROFIT or NET EARNINGS (your income minus your expenses). I thought it was just income.
So now I have to withdraw the excess contribution and pay taxes on it. Luckily, if I do it before the same year’s tax deadline (4/15) I won’t have to pay the 10% IRS penalty which would be painful.

So please be careful with your language!

Also , here:
“On top of the $16,500, as the employer you can also make a profit sharing contribution up to 25% of your pay (which would be based on your W-2), not to exceed $49,000 for 2009. (I have an example below)”

People might be misled here. It would only be based on your W-2 income if it’s you have a CORPORATION with its own W2s.. But not all self-employed people with solo 401Ks are corporations! Myself included. So, people might be misled that W-2 refers to the W2 income they get from a different employer. I was confused anyway and headaches have resulted. We’re only talking about W2 from your own business here.

I am in the IT consulting business, incorporated as an S corp and make an hourly rate. My gross payroll is 137K and Net Payroll (after 401K and Employment Taxes) is $82K. I set up the Solo 401K and contribute 25% of my my gross payroll as follows to max out the $49000 limit:
Employee Deferral 401K $16500
Employer Contribution to Solo 401K 32500

Is this the correct way or do I need to calculate 25% of Net Payroll ?
Also How can I contribute for my wife. She be a share holder of my S corp, if that what it takes ?

Thanks in advance
Raj

I personally do not set them up, but I am an affiliate of the Nabers group who set mine up. Cost really depends on how many bells and whistles you want. With my Solo 401k, I can pretty much invest into anything that I want (some restrictions obviously apply).

Regarding cost, I wouldn’t suggest going with the cheapest provider. I’ve seen some anywhere from $250 as high as $5k. I paid around somewhere in the middle.