K1 Income and Profit Share

Trying to figure out if K1 Income can be used towards a Profit Sharing Contributions?  We have a two partner 401k who pay themselves meager salaries limiting how much PS they can receive.  Question is can we use K1 Income?  Hope it is not an obvious question as I could not seem to find any older threads.  Thanks in advance for any advice

What kind of an entity is the plan sponsor, a partnership or an s-corp? 

Sounds like you have a s-corp so you (they) are stuck with W-2 income only.  Shareholder distributions from a s-corp are not compensation for plan purposes.

If the K-1 reports earned income and/or guaranteed payments, that is generally included as plan compensation.

Still not clear if s-corp or partnership, big difference.

2 hours ago, Dan said:

If the K-1 reports earned income and/or guaranteed payments, that is generally included as plan compensation.

Not if it's an S-Corp.  In such a setup, the partners (should) take some W2 income, taxed as ordinary income, and the rest is pass-through dividends taxed at the dividend rate.  That is reported on the K-1.  (That's my understanding of them)

Dividends are not includable in income for plan purposes.  Therefore only the W2 wages are used for S-Corps.

In addition, if a partnership, the partners should not be getting any W-2's.

20 hours ago, Jakyasar said:

In addition, if a partnership, the partners should not be getting any W-2's.

You would think that, but it does happen.  Some places run deferrals through payroll so they can get them to the record keeper electronically.

Oh, seen it many times, they never listen, always warn them about the IRS audit issues but what do I know?