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February 19, 2009


Your Guide



Income used for purposes of determining amount of contributions made to an employer sponsored plan or IRA.

For common-law employees, compensation is usually salary, wages bonuses and tips.

For purposes of making an IRA contribution, compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services are compensation.

For unincorporated business owners, compensation is usually net-earnings from self-employment.

Referring Cite

IRC §415(c)(3)(D)(2), IRC §3401(a), Form W-2, Governing Plan document, Publication 590

Additional Helpful Information

  • Compensation may be defined differently for certain purposes, such as non-discrimination testing.
  • Qualified plan documents should be consulted to determine the various definitions of compensation, and when they apply

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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