How to correctly calculate maximum solo 401(k) employer and employee contributions; also have a W2 pension contribution on form W2 line 12 Code D

[user17741895302]

I received form W2 with pension contribution on line 12, code D; also have a business in which I am the only employee and for which I have opened a solo 401(k).  I purchased TurboTax 2025 Home and Business and would like to maximize my tax deduction for my contributions to my solo 401(k). 

After trying to understand this via reading online, I deducted the amount on form W2 line 12 code D from $23,500 (the IRS 2025 maximum employee contribution); I entered that on line 6(a) of the 2025 Keough, Simple and SEP worksheet.  I did not click on lines 1(d), 2(d) or 4(d) of the worksheet (by which to calculate the maximum deductible contribution for multiple plans, profit sharing plan, SEP).  However, line 6(f) also has a "calculate the maximum deductible contribution" box.  If it is checked, the total tax liability is lower than if it is not; the the calculations on the rest of the worksheet are exactly the same, except that, if the box in line 6(f) is not checked, the amount that is transferred to Schedule 1, line 16 as an adjustment to income is less.  

Here are my questions:

(1) Is the procedure I used correct?

(2) What is the reason for the difference when the box in line 6(f) is checked versus when it is not?

(3) Why does TurboTax apparently not automatically deduct pension contributions in W2 line 12 Code D that have been inputted into TurboTax and why does it seem TurboTax does not support automatic calculation of the maximum deductible solo 401(k) contribution when the W2 also contains a contribution? The W2/solo 401(k) contribution issue comes up repeatedly in TurboTax fora and it seems it should be possible to support.

(4) Finally, it would be very helpful if my TurboTax program provided a clear explanation of which amount should be deposited into the 401(k) as the employer contribution and which amount as the employee contribution, and when to check the various maximization boxes; these are difficult to figure out oneself.  Is there anywhere this is shown in my Home and Business program, and, if not, could such an explanation be given here?

[dmertz · Accepted solution]

After entering the permissible employee elective deferral amount ($23,500 minus the amount with code D in box 12 of the W-2), mark the SEP Maximize box to calculate the permissible employer contribution for the solo 401(k).  Do not mark the Maximize box for a 401(k) contribution.  The calculation of the permissible employer contribution is the same for both types of plans, but the Maximize function for a SEP contribution does not add any more to the elective deferral.  Your permissible employer contribution will be the total deductible amount minus the elective deferral that you entered on line 6a.

[user17741895302]

Thanks very much for responding. 

To add further detail, I can make a $7500 catchup contribution.  My Schedule C net profits minus 1/2 social security tax paid looks like it will be $39,188.  W2 line 12 code D is $2348. 

As a result - if I have this right - there is the catchup contribution of $7500, plus the maximum employee contribution of $23,500-$2348=$21,152, plus the maximum employer contribution of .20 x $39,188 = $7838.  This is a total of $36,490, which matches the result from this calculator: Solo 401(k) Contribution Calculator — Oblivious Investor. 

When I followed the guidance of checking the SEP IRA checkbox (but no other checkbox in the worksheet), the TurboTax worksheet knew my age and added a $7500 catchup contribution in step 17.  It correctly calculated $7838 in step 7.  I had inputted an employee contribution of $21,152 in step 6(a).   However, the amount the last line of the worksheet wants to transfer to Schedule 1, line 16 is $28,990, not $36,490.  How did TurbuTax arrive at $28,990?  Shouldn't it be $36,490?   If it is calculating the correct amount, can you explain what it is based on?  

Thanks again.

[dmertz]

You would need to add the $7,500 as a 401(k) catch-up contribution on line 6c.  The catch-up contribution is an additional employee elective deferral.

[user17741895302]

Thank you very much.  One more question:  Will the IRS computer system think there is an error in my return if I checked the SEP box on the worksheet, when I have a solo 401(k)?  Is there any other way to do it that will not look like I checked the wrong box?  

[dmertz]

The IRS will have no way to know which box you marked.  That detail is not present in your filed tax return.  All that will be present is the deduction on Schedule 1.