Yes, TT is doing it correctly. If eligible, you may take both the IRA deduction and the Retirement savers Credit.
A 401k deduction is not entered on line 17 of 1040A. It has already been "deducted" by not being included in box 1 of the W-2. But, it is eligible for the Savers Credit. TT picks that up from box 12 of the W-2. Line 17 is only for an IRA deduction.
You son may still make an IRA contribution (in addition to his 401k contribution), but having a retirement plan at work (including a 401k) limits the deductibility of an IRA contribution. If his income is low enough*, he may still take a deduction, although it may be a reduced deduction. He may be eligible for a Roth IRA (income under $133K Single)
*$72,000 Single, $119,000 Married
