Putting together a list of year-end financial steps? If you’re self-employed, here’s one more to consider — setting up an Individual 401(k).

Also called Solo 401(k)s and Self-Employed 401(k)s, these work just like regular 401(k)s offered by many employers, except that the limit on tax-deductible contributions is much higher: $49,000 for 2009, or $54,500 for people 50 and over. For a standard 401(k), the comparable figures are $16,500 and $22,000.

To make a contribution for 2009, an Individual 401(k) must be set up by the end of the year, though the account does not have to be funded until your tax-return deadline, typically mid-April unless you get an extension.

Contributions are deductable on your federal income tax, and withdrawals are taxed as income. Or you can designate the account as a Roth 401(k). You would get no deduction on contributions but withdrawals would be tax-free.

Generally, the traditional 401(k) is preferable if you expect your income-tax rate to be lower in retirement. A Roth is better if it’s likely to be higher.

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To qualify for an Individual 401(k), you must be self-employed or a business owner, and generally can have no full-time employees other than your spouse, though you may be able to have some employees such as part-timers. You can be set up as a sole proprietorship, partnership or corporation.

Maximum contributions are based on your W-2 income or net business profits. An example from brokerage Charles Schwab (Stock Quote: SCHW), shows that a sole proprietor under 50 who nets $75,000 in 2009 could contribute $30,550, compared to $13,940 in a SEP IRA or profit-sharing plan, and $13,578 in a Simple IRA — other retirement plans used by the self-employed.

There are virtually no legal limits on the kinds of investments that can be made through an Individual 401(k), though the brokerage or fund company that provides your plan may have restrictions. Some fund companies, for example, limit investments to their own funds, while others offer a “brokerage option” allowing just about any investment. Some providers allow participants to borrow against the assets in the plan, others do not. Some providers have no fees, others do, though they are generally modest.

Most brokerages and fund companies have information and account forms on their Web sites, including Fidelity Investments, T. Rowe Price (Stock Quote: TROW), Vanguard Group and E*Trade (Stock Quote: ETFC).

Try not to wait until the last minute, as the paperwork is extensive. Also plan to do your 2009 tax return as early as possible to determine your maximum Individual 401(k) for the year.

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