self employment income & 401(k)

[eilano]

An employer (sole prop) sponsors a Safe Harbor 401(k) Plan with a basic match. For 2005, the owner's net schedule C (after the common law participants' contributions & SETD) is less than $210,000 and his deferrals are $18,000. The plan's definition of compensation includes salary deferrals. In determining the owner's employer contribution allocation (4% of comp in this case), should his SEI be reduced by his $18,000 deferrals after reducing it by SETD?

[Jim Chad]

His self employed income should not be reduced by his $18,000 deferral. In this area he is treaed like the other employees.