Compensation Election

[mlp0816]

Have a client who is a Schedule C owner of a company who does not receive w-2 wages from the company. However, this client would still like to make deferral contributions. In looking at the adoption agreement, there are 3 choices to make an election; (1) W-2 wages; (2) Code 3401 (a) federal income tax withholding wages; and (3) 415 comp. Can anyone advise with which option to elect and give a brief explanation? Thanks!

[Bird]

Look at the definitions in the basic plan document - they probably all include "earned income" so it probably doesn't matter. That is, you don't necessarily have to have wages reported on a W-2 to have "W-2 Compensation." If you have any doubts use 415 comp.