Does TT have multiple bugs in self-employed solo 401k individual 401k for 2023? Will TT give multiple answers in different screens and also Schedule 1 line 16 is wrong?

[raytaxman778]

IRS Publication 560 Rules are complex as a person can work a W-2 with a 401k and be self employed with a 1099 in same year and want a solo 401k. Plus over age 50 allows $7,500 more as catch-up. Solo 401k also allows 25% of business income in addition added in for the solo 401k.

[dmertz]

TurboTax properly implements the worksheet from Chapter 5 of IRS Pub 560.

Someone who is self-employed is permitted an employer contribution to a solo 401(k) of no more than 20% of net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes.

The regular elective deferral can be no more the $22,500 for 2023.  If over age 50, a catch-up contribution of up to $7,500 can be made, entered in the separate box for catch-up contributions.  Employer contributions are to be entered into a third box specifically for employer matching or profit sharing contributions.

The summary displayed by TurboTax is really confusing.  Examine TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet (TurboTax's implementation of the worksheet from Pub 560) instead.

[raytaxman778]

dmertz-RE:Solo 401k limit---2023---thanks for that info, but it does not agree with most info on the web such as per FIDELITY    (summary:  age over 50-- $30,000 plus 25 pct net)     URL below  : Solo 401(k) contribution limits for 2023

In 2023, aggregate contributions can reach up to $66,000 if you are under 50 and $73,500 if you are 50 or older.

While those are the absolute maximums that can be contributed to a solo 401(k), the amount you can contribute may be different. That's because solo 401(k)s come with a little nuance. With a solo 401(k), you can make contributions in 2 ways: as the employee and as the employer. Each portion of that equation has a different limit that adds up to that hypothetical max of $66,000 or $73,500 for those 50 or older.

In 2023, you can contribute up to $22,500 pre-tax dollars to your solo 401(k) as an employee, the same amount that a regular employee can contribute to a traditional 401(k). If you're at least 50 years old, you can add a catch-up contribution of $7,500, for a total employee contribution of $30,000.1 You can choose to contribute up to 100% of your compensation, provided you don't exceed these limits.  .....   you are also allowed to contribute up to 25% of earned income (meaning after Social Security and Medicare taxes) for the employer portion, or profit-sharing contribution.2 The IRS limits the amount of compensation that determines retirement contributions; for 2023, the limit is $330,000. As an example, a consultant under 50 with earned income of $100,000 can put in $22,500 as an employee and up to $25,000 (25% of $100,000)3 as the employer for a total of $47,500.  ...... from URL   https://www.fidelity.com/learning-center/smart-money/solo-401k-contribution-limits#:~:text=In%202023...).

[dmertz]

25% is the base rate and is applied directly to the wages of non-owner employees.  However, the self-employed individual's employer contribution itself reduces the amount which gets multiplied by 25%, so the base rate must be adjusted to account for that.  The adjusted rate for a 25% base rate is 20%, so 20% appears on the worksheet as the maximum.  See the rate adjustment calculation in Chapter 5 of IRS Pub 560:

Adjusted Rate = Base Rate / (1 + Base Rate)