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

[connessdg]

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

[IsabellaG · Accepted solution]

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.

[jzlthssw]

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

[TomD8]

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.

[dmertz]

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.