Individual 401K Deduction is very small

Hi! I've contributed about half of what I make as a freelancer to an Individual 401K (just over $20K). When I add this as 'Self-employed Retirement' in Elective Deferrals and Catch-up Contributions, I get $600 off the amount of tax owed. I'd think it would remove the $20K from my gross income.

Am I delusional? Help!!!

posted

May I suggest you switch to the FORMS mode and looking at the actual forms before and after such an entry so you understand exactly what is happening. The 401K only reduces the federal taxes not the SE taxes.

Does it say you contributed too much? You can only contribute from the Net Profit not the gross income. And then there are limitations. Like the Net Profit minus 1/2 the self employment tax.