Many entrepreneurs choose to establish 401(k) plans since they offer higher contribution limits and provide features other qualifying plans do not (tax-free borrowing, Roth option, etc.) and can be established by both sole proprietors and business owners with employees. In 2020, your 401(k) contribution / deduction could include up to $19,500 of elective deferrals (amount of your compensation you choose to put into the plan) plus an additional employer contribution of up to 25% of your compensation. Typically, you do not pay income tax on amounts you put into your 401(k) until you withdraw the funds (presumably when you retire). Further, you can deduct contributions to your own plan, and contributions to the plans of your employees, which can add up to create significant tax savings.