I'm looking at either a SEP IRA or a solo 401k plan to reduce taxes on the income I get from my single-member LLC side business (I also am a W-2 employee of a different company). I already max out my 401k contributions at my W-2 employer. Because the maximum employee contribution is aggregated across all 401k plans, I believe that for a solo 401k the only contribution I could make is the employer profit sharing amount, which would be the same as the maximum SEP IRA contribution (roughly 20% of the single member LLC income). However, when I run the numbers in TurboTax and select "maximize contribution" it says that for 2018 my max contribution to a solo 401k would have been substantially higher than the SEP IRA amount. It looks like it is ignoring the fact that I contribute to another 401k. Does TurboTax not correctly calculate the maximum solo 401k contribution if you have a separate W-2 employer 401k?
You are correct, this is an unsupported calculation. Since you've already made the maximum permissible elective deferrals at your W-2 employer, you can only make an employer contribution to the solo 401(k). To allow TurboTax to calculate only the maximum permissible employer contribution you must select the Maximize box for either a Profit Sharing Keogh or a SEP contribution. The result will be the same as for an employer-only contribution to the solo 401(k).
You are correct, this is an unsupported calculation. Since you've already made the maximum permissible elective deferrals at your W-2 employer, you can only make an employer contribution to the solo 401(k). To allow TurboTax to calculate only the maximum permissible employer contribution you must select the Maximize box for either a Profit Sharing Keogh or a SEP contribution. The result will be the same as for an employer-only contribution to the solo 401(k).
Where can I select Max box for only the Profit Sharing Keith or a SEP contribution? I only have one box that is maximize the 401K contribution.
I found it. Never mind. Once I select that I want to contribute SEP or Profit Sharing Keogh, it allows me to maximize them.
Where does TT show the calculations for the 401(k) allotment so I can check its work and see what exact amount I need to contribute to each part of the 401(k)?
In my case:
W2 company plan has 401(k). I contributed $9K
1099 self-employment business therefore has $10500 left for elective deferral
BUT, I can also contribute up to 25% of compensation for employer nonelective contribution.
When I click calculate MAX, TT says the total I can contribute for self-employment 401(k) is $28K. So I need to know what exact amount is elective deferral and what amount is for that 25% (employer nonelective contribution).
Thanks for any help.
The calculation is done on the Keogh, SEP and SIMPLE Contribution Worksheet. Use the Maximize function for a SEP or Keogh Profit Sharing contribution to have TurboTax calculate the maximum employer contribution.
The maximum employer contribution is not 25% of your net profit from self-employment. The maximum employer contribution to a self-employed retirement plan is 20% of net earnings from self-employment. Net earnings from self-employment are net profit minus the deductible portion of self-employment taxes.
Ok, I will use the equation on this IRS page to calculate who much I can contribute to the solo 401(k) beyond the basic elective deferral.
Hi @dmertz
I have a similar question. I am over 55.
With my employer, I was able to put 12.2K in my 401K - as reported on my w-2
But then I started a consulting business, and also opened a i401K.
When I click Maximize deductions, TurboTax comes up with a number of $33K that I can contribute. And Looking at the worksheet - I cannot see how it is computing that. Also It doesn't to seem to change when I change the value of 12.2K from my W-2.
So I computed the numbers manually using the worksheet from the irs.
So the question is - Can I contribute 19,500 - 12,200 (from my w-2), + 6500 (catchup) + Employer Contribution (from my personal business)
Thaks
You seem to be getting the same problem I'm getting from TT. TT should be able to calculate our contribution amounts itself.
Why do I now have to go to the IRS website and figure it out myself???
jun_jazz, yes, that's the correct calculation.
TurboTax considers this to be an unsupported calculation rather than a bug. It's on TurboTax's list of unsupported calculations (Other Deductions and Adjustments #6):
https://digitalasset.intuit.com/DOCUMENT/A5LpvlbgD/Unsupported_calcs_2020.pdf
Ok, so I went to see where TT made the MAX 401(k) calculation - the Keogh, SEP and SIMPLE Contribution Worksheet. (it's confusing because the title should also say "individual 401(k)".
I see now how it came up with $28821 in my case. (part V line 1)
That's the "Total maximum allowable deduction" ** not including defined benefit plan contribution**. So I guess that means it does not include the elective deferrals I made to both my employer 401(k) and my individual 401(k) ?
So, since $19,500 - my employer salary deferral 401(k) contribution = $9816 , that's what I'll put for my solo 401(k) elective deferral. And then for my deductible profit-sharing contribution, I can put $28821 or less???
Am I doing this right 🙂
I think what's important to remember is that we as self-employed individuals can make a ELECTIVE (SALARY) DEFERRAL to our 401(k) not to exceed $19500 (including what you gave to W2 401(k). ** AND**. you can ALSO contribute a deductible portion as a profit-sharing part of your 401(k). So, in my case, it looks like that's an additional $28K.
Hm. But now I did the calculations on this IRS page for "plan contributions" and I get a much lower number: $7761.51.
That's a big difference from $28K.
I'm confused.
Now I'm back to thinking TurboTax has a bug here. First, it's not taking into account the W2 401(k) elective deferral I made. That should be easy to read.
Plus, its Keogh/SEP worksheet may still not be calculating the right amount I can contributed to my individual 401(k) BEYOND the individual 401(k) elective deferral.
TurboTax's summary page for individual 401(k) contributions in step-by-step mode is gibberish. Look at the Keogh, SEP and SIMPLE Contribution Worksheet to see the components of your contributions. Use the SEP Maximize function for calculating your employer contribution and your maximum employer contribution will be the deductible amount minus the dollar amount of elective deferrals that you enter.
My issue with this is that I've gotten the calculation, but it's not reducing my tax bill as expected. No matter what I put in to the retirement contributions page (I've tried $0 all the way up to $100k), my tax bill doesn't change. This doesn't pass the sniff test.
The TT SEP calculation is doing something wrong, I think. (More likely operator error, but bear with me.)
I've gotten as far as checking the box to maximize my SEP contribution. But the answer that pops up is several thousand dollars more than the net income from self employment on Sch. C before calculating the SEP. So I used a worksheet I found online and came up with what appears to be the correct amount. I manually entered the amount I manually calculated but when I did a smell test the greater maximized account was entered on Schedule 1.
Vot gifs, captain? (Only the elderly will remember the Katzenjammer Kids. )
I liked the Katzenjammers. But Li'l Abner was my jam.
The maximum SEP contribution is 25% of your net income from self-employment. You said that the contribution was several thousand dollars more than the net income from your schedule C. That means that the program thinks that something else is self-employment income and is taking it into account when figuring the contribution. You need to figure out what else has been entered as self-employment income and correct it.
I am having similar doubts about how turbotax is dealing with sep/simple/roth deductions.
i tried to enter a roth and it tells me it isn't allowed, since there is no earned income, even though it has the schedule C and earned income entered on 1040, along with self employment tax. but then in the in the form view, the Roth amount is listed.
when I tell it to maximize SEP and then enter a Simple amount $3000 more than the $2420 part time income, it tells me I can contribute $500 more. . So I try that, and again, tells me the maximum is $500 more. On and on.
It also mentions the employer match, though not whether this is intended at part of the entered amount or in addition.
the keogh/SEP worksheet shows a maximum allowable Simple amount of 16,500, though the IRS site
clearly states than Simple contribution can't be more than earned income plus $3000 catch up.
I don't have a good feeling about this.
I did find one erroneous amount but even after correcting for that the amount TT says is allowable is almost equal to the total SE earnings. I looked at the Byzantine "Keough/SEP worksheet" and I don't see anything wrong with it.
This wasn't like this last year; IIRC the calculation went smoothly from the point of the "Maximize" step forward. All the variables are pretty close to the same as before.
Did you mistakenly mark the Maximize box for an individual 401(k) in addition to marking the Maximize box for a SEP contribution?
Roth IRA contribution is not deductible from your gross income, but the earnings can grow tax-free. If you meet all the requirements when you take a distribution, the earnings are tax free.
No. I saw that possibility; but I checked the correct box.
Thanks for looking at this.
@FangxiaL I am familiar with the qualities of roth accounts. my comment wasn about how tt was dealing with the input. Along with with the other problems mentioned.