Compensation Defination

[Guest SLynch]

Owners receive a W-2 as well as a K-1'. Can 401(k) deferrals be based on total compensation from both sources?

[Guest Gary Tencer]

No. No. No.

[Guest GG]

How can you say "no" without knowing the terms of the Plan Document?

I suggest you check the definition of "Compensation" in the Plan Document, before you limit deferrals, or perhaps run your 401 (k) discrimination test on the wrong definition of comp.

Is this an "S" Corp?

[Guest Gary Tencer]

I assumed that if the owner received a Form W-2 and a Schedule K-1 that the entity has to be an S-Corp. Everybody should know that S-Corp Sch K-1 income is not eligible for a qualified plan.

However, Sch K-1 self-employment income from a partnership is compensation, but the owner would not receive a W-2.

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[Guest Tracy]

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[This message has been edited by Tracy (edited 05-13-99).]

[Guest VFernandez]

Good logical thinking Gary! Compensation and deferral limitations are defined by the IRS, they are not defined by the plan document. However, plan documents only apply to employees as defined under the plan itself...self-employment without a W-2 is unlikely to be chosen by an employer as an option for plan participation, since most 401(k) plans are offered as an employee retention benefit.