Did definition of earned income change recently?

[Spencer]

A client's accountant recently told us that we no longer have to reduce earned income by the contribution to the self-employed individuals. There are no common law employees in this plan so once we reduce for the self-employed taxes, we're done according to him.

Is this correct?

[BeckyMiller]

The rules for self-employed persons continue to frustrate us. IRC Section 401©(2) continues to define earned income as net earnings from self-employment reduced by any deductions allowed by Section 404 to the Taxpayer.

This is the beginning point for any determination of contributions or allocations for self-employed persons.

Where changes have taken place deals with the eligibility of self-employed persons for matching contributions. These no longer count as part of the 402(g) limit.