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posted Jun 6, 2019 8:19:14 AM

Does ordinary business income (from Schedule K-1) qualify as earned income for purposes of IRA contribution deductability ?

"Ordinary business income" is shown in box 1 of Schedule K-1 (Form 1120S).

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1 Best answer
Expert Alumni
Jun 6, 2019 8:19:14 AM

No, distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes. You can only include the compensation you received from the S Corp, in the form of W-2 Wages.

4 Replies
Expert Alumni
Jun 6, 2019 8:19:14 AM

No, distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes. You can only include the compensation you received from the S Corp, in the form of W-2 Wages.

Level 2
Jul 14, 2022 11:24:59 AM

Isabella I think you are confusing "distributions" with K-1's Part III Box 1 income (which is the subject matter).

Level 15
Jul 14, 2022 1:09:57 PM

A general rule of thumb is that if the income is subject to FICA / Medicare taxes, then it is considered earned income in the eyes of the IRS.

 

Level 15
Jul 14, 2022 3:29:13 PM

Nothing on a Schedule K-1 (Form 1120S) is compensation that will support an IRA contribution.  The only amount related to the S corp that is compensation that will support an IRA contribution is the amount in box 1 of the W-2 from the S corp.