Personal Finance

I want to maximize my 401(k) up to $57,000 with employer matching — how can I achieve this?

Rich Duprey

Published: January 2, 2025 6:12 pm

My father used to tell me you will never get rich working for yourself. While it is possible to grow wealth over time doing the 9-to-5 grind, working for yourself and working for someone else are worlds apart in opportunity.

Especially when it comes to saving for your retirement, there are so many additional opportunities available to self-employed individuals to save extra money. They are not always as straightforward as simply having your 401(k) contribution deducted from your salary, but the extra work and expense required is made up for in the extra amount of money you are able to squirrel away for retirement.

24/7 Wall St. Key Points:

• Being self-employed provides greater freedom and opportunities to make and save more money for retirement.
• There are numerous strategies you can employ working for yourself that are unavailable to regular employees, but due to their complexity, warrant speaking first with a financial advisor.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

The situation

A Redditor on the r/fatFIRE subreddit works for a company, but has the opportunity to do some consulting work on the side for it. He was told he can incorporate his business and then set up a retirement program to make contributions to while also realizing extra tax deductions. He wants to know if he can put away as much as $57,000 a year into a self-funded 401(k), “hire” his wife and contribute to her retirement, and even fund a pension plan to retire early.

The good news for the Redditor is that not only are all of these possible, but he can put even more money away than his goal. There are also a lot of strategies he can use to optimize the opportunity, but it’s not simple and initially won’t be easy or cheap to set up. But once the plans are in place, maintaining the plans is relatively simple.

It could be a financial windfall for him that would not be available were he to simply remain a wage slave.

Savings opportunities galore

Now I’m not a financial advisor, so these are only my opinions, but there are many benefits to owning your own business, including tax deductions that simply aren’t available to the average worker. For example, a home office deduction, one time a highly abused deduction that would invite IRS audits, remains just one item you can take advantage of, as well as various business expenses that can be used to reduce your taxable income.

In regards to retirement plans, the Redditor can set up a 401(k) plan (either a traditional one or a solo-401(k) specifically for self-employed people); a simplified employee pension plan (SEP-IRA); profit-sharing plans; and a pension plan. He can also employ his wife, pay her, and contribute to the retirement plan on her behalf as the employer.

Once those are in place, he can use advanced strategies like converting 401(k) contributions to a backdoor Roth IRA. While 401(k) contributions are made on a pre-tax basis, so earnings grow on a tax-deferred basis, converting them to a Roth IRA allows them to ultimately grow tax-free. There would be taxes due on the conversion, but afterwards everything would be tax-free at withdrawal.

The limits of working for someone else

When a regular employee contributes to their 401(k), they are limited to a maximum contribution of $23,500 a year in 2025, unless the employer has an employer match program in place or a profit-sharing plan. The maximum combined contribution is $70,000.

With the Redditor’s own 401(k) or SEP-IRA, he can ensure that the maximum contribution is going in without worrying whether a third-party will contribute additional funds. And depending upon how much he makes in his consultancy, he could potentially use a mega backdoor Roth IRA, which allows high-income individuals to make even larger contributions that can lower or eliminate any tax liabilities.

Key takeaway

As Jay Gatsby once noted, “Let me tell you about the very rich. They are different from you and me.” They have more tools available to them that allow them to keep more of the money they earn. 

Simply working for yourself doesn’t automatically make you rich, but it does open doors for more opportunities to save from the tax man the money that is rightfully yours. Using these advanced strategies can help you achieve them, but because of their complexity, they necessitate working closely with financial and tax professionals that can guide you through it. It is an expense well worth paying.