say an individual is an S corp.

if on the individual's 1040 he shows S corp income of say 50,000 and no other compensation.

can the 1120S make a ret plan contribution for that individual and can the individual make a 401-k salary deferral?

thanks ,
gary

The S corporation income will not support a 401k or any other kind of retirement plan contribution. There must be earned income; which is generally income subject to social security or self-employment tax.

In an S corporation, salary is needed for a retirement plan contribution or 401k deferral.

K1 income is not salary, wages or other compensation.

No salary or wages means no salary deferral.

Mary Kay - I've always understood that it must be W2 income. Question - is there any type of "earned income" that would be eligible that is NOT W2? Thanks!

With an S corporation it would definitely be W-2 income. I was just speaking generically because directors (receiving Forms 1099), consultants, partners and other self-employed people can use Form 1099 income for plan contributions. A partner or LLC member can use K-1 income, if it's SE income, to support the contribution to a retirement plan.

Please help with a related question. (Please forgive my ignorance) Is the deductible retirement plan contribution for the LLC member the full 25% of their income? Thanks.

It depends :

If the LLC is organized as a partnership- the percentage is 20 ( similar to a sole proprietorship)

If the LLC is organized as a corporation, it is 25 percent of W-2 wages.

Can S corp distributions be included as considered compensation IF taxes are withheld from the distributions? And if always W2 income for S corps, can you tell me where that citing is? I've been trying to find it. Greatly appreciated, Donna, APA TPA President

Those who are both owners and employees of an S corporation can receive payments from the S corp either as wages (reported in Forms W-2) and as dividends. That which is received as dividends is passive, not earned income and thus not compensation for qualified retirement plan purposes.

DNH

What sort of taxes would be withheld from S corp distributions ?

Distributions/dividends are not W-2 income, so I do not understand the request for a cite ? Cite regarding what ?

Ok, Can someone confirm or deny the following:

Assume I'm an S-Corp owner and I receive $50,000 in W-2 wages and then I also take an additional $50,000 in taxable shareholder distributions then it is my understanding that I can defer up to the max (2009 $16,500 or $22,000) from my W-2 income and then I can also make a profit sharing contribution equal to 25% of K1 income.

Denied. Your contribution is based upon W-2 only. The K-1 "pass through" income is ineligible for consideration for qualified plan contribution purposes.

Belgarath, since W-2 and K-1 are the same, is it possible that anspai meant to type "W-2" rather than "K-1" at the end of the question? In that case, would you still deny?

Generally an S-corp K-1 will be reporting only investment income, not earned income for retirement plan purposes. The W-2 would report the ONLY income that can be considered.

Mike knows that. He was just wondering if the OP mistyped the question. Guess we'll have to wait and see.