Have a client that has a S corporation and wants to adopt a 401(k) Safe Harbor plan. She has 2 W-2 employees and also takes a W-2 income. She has substantial K-1 income also from the business. Can she use any portion of her K-1 in determining any contributions to the plan for possible discretionary profit sharing or additional discretionary matching?

What’s the tax implications to her and the business if she wanted to shift a portion of her K-1 income to W-2? I assume just the payroll tax costs difference of 7.6% for the business share?