What 401(k) plans are available for contractors?

An independent contractor with no employees may establish a one-participant 401(k) plan, or solo 401(k) plan, according to the Internal Revenue Service. Contractors may contribute larger amounts to one-participant 401(k) plans because they may do so in their capacity as an employee and an employer.

One-participant 401(k) plans minimize self-employment tax liability for contractors with S-corporations since contractors do not have to increase their personal income to enjoy higher contribution rates, explains Independent Contractor Tax Advisors. A contractor's spouse who receives income from the business may also contribute to the contractor's plan, doubling the contribution limit. However, one-participant 401(k) plans cost more to set up and maintain and require more paperwork, states Nolo.