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xtexan
Level 2

How do I tell what to contibute to my solo 401k from the TurboTax "Keogh SEP and SIMPLE Contribution Worksheet"?

I checked the boxes in TurboTax to maximize my solo 401k contribution.

 

Now, how can I tell what the maximum amounts are for the following?

1. salary deferral

2. catch up

3. employer contribution

 

The catch up is easy - that is line 17 on the worksheet.   $6,000

 

But for #1 and #2, these are unclear.

 

"Allowable elective deferral" (line 9 of TT Keogh worksheet) is $19,000

 

Is this the same as salary deferral?

 

Max deductible contribution for MP, PS, SEP & Indiv 401k Plans (line 21) is $17,937.  What is this amount, and why is it less than the "allowable elective deferral"?

 

The allowable catch-up (line 17) is $6000; so shouldn't the max deductible be  $19,000 salary deferral + $6000 catch up = $25,000?

 

If you check the "maximize contribution" box, there is nothing in TurboTax to plainly state what the salary deferral, catchup, and employer contribution amounts should be.

 

1 Best answer

Accepted Solutions
dmertz
Level 15

How do I tell what to contibute to my solo 401k from the TurboTax "Keogh SEP and SIMPLE Contribution Worksheet"?

TurboTax's page indicating the amount that you are permitted to contribute has never provided a comprehendible breakdown of your permitted elective deferral and employer contribution.  It's even worse this year because TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet has not been fully updated with the 2020 elective deferral limits (regular should be $19,500 and catch-up should be $6,500).

 

Line 9 of the worksheet is simply the section 402(g) limit, but as I said, it hasn't been updated to $19,500 for 2020.  However, this lack of update is not affecting the calculation because your net earnings are limiting you to a total contribution of less than $19,000.

 

If TurboTax is saying that you maximum deductible contribution is $17,937 (worksheet line 21), that amount consists entirely of regular elective deferrals, limited by your net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes (worksheet line 3).  Presumably this is the result of having a net profit of $19,301 (assuming that you don't have W-2 income that when combined with income from self-employment would result in exceeding the Social Security wage base above which you no longer pay the Social Security tax portion of self-employment taxes).

 

In this case all available net earnings are going to elective deferrals and none remains from which to make an employer contribution.

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2 Replies
dmertz
Level 15

How do I tell what to contibute to my solo 401k from the TurboTax "Keogh SEP and SIMPLE Contribution Worksheet"?

TurboTax's page indicating the amount that you are permitted to contribute has never provided a comprehendible breakdown of your permitted elective deferral and employer contribution.  It's even worse this year because TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet has not been fully updated with the 2020 elective deferral limits (regular should be $19,500 and catch-up should be $6,500).

 

Line 9 of the worksheet is simply the section 402(g) limit, but as I said, it hasn't been updated to $19,500 for 2020.  However, this lack of update is not affecting the calculation because your net earnings are limiting you to a total contribution of less than $19,000.

 

If TurboTax is saying that you maximum deductible contribution is $17,937 (worksheet line 21), that amount consists entirely of regular elective deferrals, limited by your net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes (worksheet line 3).  Presumably this is the result of having a net profit of $19,301 (assuming that you don't have W-2 income that when combined with income from self-employment would result in exceeding the Social Security wage base above which you no longer pay the Social Security tax portion of self-employment taxes).

 

In this case all available net earnings are going to elective deferrals and none remains from which to make an employer contribution.

xtexan
Level 2

How do I tell what to contibute to my solo 401k from the TurboTax "Keogh SEP and SIMPLE Contribution Worksheet"?

Thanks @dmertz 

 

You're right, TurboTax's worksheet isn't comprehensible or up-to-date.

 

I'll contrast that with your answer, which satisfies on both accounts!  Cheers to you.

 

In the future, I'll ignore the TurboTax worksheet, and use this nifty one that I found from Fidelity.

 

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employ...

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