Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

steve-gortsema · ‎June 6, 2019

Checking the box to calculate maximum contributions seems to not provide the full 20% of profit for profit-sharing contributions.

dmertz · ‎June 6, 2019

Your net profit is in the range where your contribution is subject to the little known limitation that your total contribution is not permitted to exceed net earnings reduced by your employer contribution. That works out to $18,000 of elective deferral plus $1,254 of employer contribution:

Net profit = $22,067
Self employment tax = $3,118
The deduction for ½ SE tax = $1,559
Net earnings = $20,508
Net earnings minus the elective deferral = $20,508 - $18,000 = $2,508
Employer contribution = ½ of $2,508 = $1,254
Total contribution = $18,000 + $1,254 = $19,254
Net earnings minus employer contribution = $20,508 - $1,254 = $19,254

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steve-gortsema · ‎June 6, 2019

Thank you for the thorough and clear answer. Very helpful!

dmertz · ‎June 6, 2019

For what it's worth, for someone under age 50 who is not maxing out the Social Security wage base at another employer, this particular limitation is the limiting factor for 2017 only between $19,370 and $32,275 of net profit. Below that range there is no employer contribution (the maximum contribution is achieved by making it all elective deferral) and above that range net profit is sufficient to support the full employer contribution of 20% of net earnings (until the overall limit of $54,000 is reached).

steve-gortsema · ‎June 6, 2019

Good to know! Thank you!

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Retirement tax questions

Retirement tax questions

Retirement tax questions

Retirement tax questions