Does TurboTax not correctly calculate the maximum solo 401k contribution if you also have a W-2 employer 401k?

[Onefish]

I've done that but will do it again. That worksheet is not easy to follow. But will give it another look. I'll get a shot of it and send it along  Stand by.

Again, thank you for your help (and patience).

[Onefish]

Here's a shot of the relevant portion of the Keough/SEP worksheet.

[dmertz]

The $19,500 on line 9 indicates that you have marked the Maximize box for an individual 401(k).  If you are not making a maximum 401(k) contribution, simply unmark that box in forms mode of the CD/download version, otherwise, revisit the self-employed retirement contribution section in step-by-step mode, indicate that you made an individual 401(k) contribution, then unmark the box on the next page.  (Simply answering No in step-by-step mode when asked if you made an individual 401(k) contribution will not automatically unmark the Maximize box.)

[Onefish]

OK...great; that did it. I'm writing down the exact steps for next year.   Thank you very, very much.

[Capt RB]

I read the message thread with great interest, but I have an issue that I think caused me to "Overcontribute"

Here's the gist of it.   Employed at a business where I max'ed out my contribution 27000 (Box 12 Code D on my W2.  Yes, i am old.  My self employed Business that I have (which has a SEP) (only one person, me)  has earned income. I want to contribute the max.  I checked the Max button on SEP on the Keogh.SEP worksheet.  Allowed value of 181359 * 20% equals 36272, which TT put on line 16 of 1040 Wks.    so then I look and it seems that I am reporting contributions of 27000 plus 36272 which is 63272.  Believe max amount I am allowed is 61000.  What did I do wrong.  Fearing I am going to have to file amended if I screwed this up.  

[dmertz]

@Capt RB , you have not overcontributed.  $61,000 is a limit on the amount what can be contributed to a particular plan (employee and employer contributions combined), not an overall individual limit.  The amount that you can contribute to a SEP plan is unaffected by the amount that you or your employer contribute to another employer's plan.

[Capt RB]

Wow.  Big mistake on my part in interpreting the limitation.  Thanks so much for the concise explanation.

Much appreciated

[smcelm]

Well, I've tried everything and cannot get this to work. Here is what I am trying to accomplish. I have two completely separate 1099 businesses, both having a 401k. Company #1 makes the max allowed of $345k and Company #2 makes about 60k.

1) For company #1, I am making only profit sharing contributions, so, $345k x .20 = $69k

2) For company #2, I am maxing out elective contributions $30,500 (I'm over 50), and also placing a small profit sharing contribution of approximately $12k ($60k x .20).

3) Lastly, I have a Cash Balance Plan that I am making a $130k contribution.

All of this amounts to approximately $241,500 of contributions.

Here is how I entered it in Turbotax

1) Under Individual 401k I placed the $23,000 and $7500 catch up contributions

2) Under Individual 401k I placed the $12k of profit sharing

3) Under Defined Benefit Keogh I placed the $130,000 for my Cash Balance Plan

4) Under Traditional SEP I left it zero and checked the maximize box

No matter what I do, TT says that the most I can contribute is $206,500. I've reviewed the worksheets and they are close to being incoherent.

[dmertz]

@smcelm , you've made several mistakes that have resulted in excess contributions.  First, if these businesses have common ownership, say, because they are both wholly owned by you, they are considered to be a controlled group and despite the fact that they are operated independently must be treated as a single employer for the purpose of a retirement plan.  Second, the maximum combined employer and employee contributions to the 401(k) and SEP plans combined is $69,000 plus $7,500 of catchup.

Considering these limitations,  $69,000 + $7,500 + $130,000 = $206,500, exactly as TurboTax has determined.

You'll need to obtain returns of the excess contributions, otherwise the $35,000 of excess contributions will be subject to a 10% excess contribution penalty on Form 5330 (not supported by TurboTax) each year that the excess remains.

[smcelm]

I have not made several mistakes. I have an approximately 3% stake in Company #1. I wholly own company #2.  Company #1 I make only profit sharing contributions to the 401k which is $345k x .20 = $69000.

For Company #2, I make my elective contributions of $30,500 plus 20% of my income which amounts to about $12k in profit sharing.

With multiple 401k accounts, I know that the aggregate employee contribution cannot exceed $30,500 but you are allowed to place 20% profit sharing in each of the 401k accounts because they are not in a control group.

The IRS has an example of this on their website: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sha.... Example 1 shows how a person with two 401k accounts from unrelated employees can contribute to both plans. Elective deferrals are limited across all 401k plans, but profit sharing is not.

[dmertz]

@smcelm , I guess I'm not understanding the ownership structure of these companies.  When you said that "you" made the employer contributions, it seemed to suggest that you were 100% owner of these companies.  If you are only 3% owner of company #1, unless this company is a qualified joint venture with your spouse and your spouse owns the other 97%, it would seem that the company is a partnership that should have made the employer contribution and reported it in box 13 of Schedule K-1 (Form 1065) which would transfer to the Keogh, SEP and SIMPLE Contribution Worksheet from your entry of the Schedule K-1, rather than you making a separate entry on that worksheet.

If both companies are actually disregarded entities, it still seems like your contributions would be subject to a single contribution limit as one self-employed individual, a single entity, not unrelated employers.

[smcelm]

Let me clarify:  I am a partner in a 40+ group of physicians. As such, I am approximately a 2.5% owner of the company. This is my main source of income and I have been with this group for 4 years. Although I am a part-owner of the company, I am paid via 1099. As such, I make both employee and profit sharing contributions myself, not the company. This company is considered an Affiliated Service Group. I have a second, completely unrelated company where I am the 100% owner and I do workers compensation reviews. For that company I make only about 60k a year and make both employee and profit sharing contributions myself. So, for 2024 my plan was to place $69k of profit sharing in the Company #1 401k. I can easily do that since my salary is over the $345k allowance. I would do all my allowed elective contributions of $30,500 in the Company #2 401k since I have enough earned income there (approx. $60k).  Now, in my opinion, I should still be able to ALSO place 20% profit sharing in my Company #2 401k which would be approximately $12k. In my opinion, the IRS allows that for unrelated companies, which is what I have. At the risk of muddying the waters, my CBP with Company #1 is a PBGC plan which does NOT limit my profit sharing contributions to 6%. Hope that clarifies.

[dmertz]

I see.  This still makes me believe that you have only one employer, yourself as self-employed and, as such, are subject to a single plan limit even though your income from self-employment comes from separate sources.  The CBP then adds to the single plan limit.  This would explain why TurboTax is giving the result that you see.  Your 2.5% ownership interest in the partnership would not seem to change that.

[smcelm]

I see what you are getting at. Regardless of this, IF I am able to provide profit sharing contributions to both plans, how can I do this in Turbotax. I have tried everything and the workaround of checking the SEP box does not work.

[dmertz]

I think the only way would be to increase amount that you enter for the CBP, but I don't advocate doing that since it's my opinion that you are subject to a single plan limit (but of course I'm just a guy making suggestions on the internet). The only things that end up on Schedule 1 are the total deduction and the "DB" indication that shows that at least some of the contribution was to a defined-benefit plan.