Retirement savings options for W2 contractor?

[brewer12345]

If someone is a W2 contractor without access to any of the employer's benefits, what retirement savings options are available? Can someone like this set up a solo 401k? Anything else?

 

[free4now]

Ira

 

[napasam]

I think if you rcv. a W2 instead of a 1099 you are considered an employee and are limited to Traditional or ROTH IRAs.

The good news is with a W2 taxes are withheld and your employer pays SS and Medicare.

 

[jIMOh]

Read IRS pub 590 and similar- there are many options which include IRA (SEPP and SIMPLE), solo 401k and even a few less common ones.

 

[Nords]

If someone is a W2 contractor...

I'm not up on employment vocabulary or definitions, but that sounds just plain oxymoronic.

 

[brewer12345]

I'm not up on employment vocabulary or definitions, but that sounds just plain oxymoronic.

W-2 contractor: you is an employee/indentured servant for all practical purposes, but you get no benefits and you have few of the protections the law affords to actual employees.

1099 contractor: the company has hired you as a vendor.

 

[Marquette]

Don't they usually open up an 'opportunity' to purchase into group medical at the w2 employee + employer rate?

And, as an added bonus, as a w2 contractor, you don't need to manage your own books since they handle tax witholding for you.

Is changing to a 1099 or corp-corp billing an option at this point?

 

[Kronk]

I've been a W2 contractor for years. The contract is really between the consulting firm and the client. I've had a 401k through the consulting firm for a number of years.

As of the beginning of the year, I switched over to 1099 consulting, primarily for the 401k advantage. My Fidelity solo 401k should be set up now, so I'll be able to contribute $15,500 plus 25% of my salary there. Of course, my firm still needs to pay me for January before I run my first payroll anyhow...

There isn't much you can do if you are a W-2 consultant, except try to convince whoever is writing your paychecks to start up a 401k plan.

 

[eridanus]

IRA and HSA are your only options.

 

[brewer12345]

OK, so it sounds as if a W2 contractor is limited to either IRAs or trying to get their employer to convert them to a 1099 contractor. Assuming that the employer is the only "client," my understanding is that it would be tough to get 1099 status and be considered legit by the IRS, right?

 

[eridanus]

Much of the burden is on the employer. They can't treat you like an employee and generally they can't deny you from working for other clients, as long as any NDAs are honored of course. I know of no IRS guideline that states that you need more than one client/1099 in a given year. I worked for a single client in 2005 and 2006.

Of course, I'm not a CPA or tax attorney.

 

[Kronk]

Here is a pretty good article (disclaimer: looks fairly accurate skimming through it). There are a set of questions that the IRS apparently uses to determine if someone is violating consultant/employee.

http://www.comptroller.ilstu.edu/downloads/20-factor-test-for-independent-contractors.pdf

It is a very gray area, and even though I'm doing it I can't pretend to be able to give advice.

One other possibility for retirement savings is to see if whoever is providing the W2 is willing to start up a 401k or a SIMPLE IRA plan.