Independent contractors deserve retirement too.February 8, 2010
Independent contractors, like many small business owners, are afforded various strategies under the Internal Revenue Code that may help reduce their tax burden. Many of those tax advantages, however, are accomplished by reducing the company profit and, therefore, potentially reducing the amount that can be contributed to a retirement account. At least this was the case until 2001. In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act, which created the One-Person 401(k) plan, also known as the Solo 401(k). This retirement account is designed for independent contractors and small businesses that do not have employees. This 401(k) plan opened the door for independent contractors to continue using corporate tax planning strategies while also taking advantage of a retirement plan to reduce their personal income tax.