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I’m a shareholder and an employee of an S corporation. Can I contribute to the company’s 401(k) plan or establish a self-employed retirement plan based on my S corporation distributions? No. Contributions to a retirement plan can only be made from compensation, which, in the case of a self-employed individual, is earned income. Distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes (see IRC sections 401(c )(1) and 1402(a)(2)). http://www.irs.gov/Retirement-Plans/Retirement-Plan-FAQs-Regarding-Contributions---S-Corporation