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It is my understanding there is something referred to as a "small business 401K" where you can own a small business and you and your spouse are the only contributors to the 401K plan.

Yep. They also go by "solo 401k" or "solo K".

There's nothing really unique about them. Any business with employees can have a 401k plan. The only difference for these is that they don't have to do most of the testing required when there are other covered employees.

We own a small business and the spouse and myself are the only employees - everyone else is a contractor (not an employee).

Be very careful here. Contractors who really should be employees can mess up a whole lot of things. Including a 401k plan or any other retirement plan. If you want to dig into this issue further, I'd suggest starting another thread.

I sort of understand that each of us can contribute $17,500 this year PLUS $5500 catch up, if we are over 50

Yep. Same rules as any other 401k plan.

I am trying to further understand, that I think these 401k contributions are deductible as a business expense?

Yep again. Mostly. They are definitely deductible from your income. But if your business is reported on a schedule C or is a partnership, the deduction is a bit different from a business reporting as a corporation. Mainly, you don't get to reduce your income for self-employment tax purposes. And you have to have at least as much income as you contribute to the 401k plan.

If you mention how your business is organized, we can give you some more specific guidance for that particular entity.

Anyway, I guess you can tell I am just beginning to research this.

Depending on your business income and your goals, you might want to look at a SEP in addition to - or instead of - a 401k plan. A SEP allows you to put up to about $50k into the plan per year. If you have both a SEP and a 401k, you can't exceed the SEP dollar limit on contributions. (Well, except that you can add in the $5500 extra to the 401k for being 50 or older.) A SEP is also limited to 20% of your income from the business (or 25% of your W-2 wages, if you pay yourself that way). So for high enough incomes, you can get the maximum deferral from just a SEP. A 401k allows you to put 100% of your income into the plan, so it's sometimes the better choice for lower incomes.

And in any case, you can also add an IRA contribution to the mix. So in theory, you could put $50k into a SEP, $5500 into a 401k, and $6000 into an IRA all in the same year. (You'd probably run into the limits for deducting the IRA contribution, but you could always make it a non-deductible contribution or possibly make it a Roth contribution.)

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