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Rebecca2010
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

Are the maximized contributions to retirement plans related to my sole-proprietor business separate from any wage-based contributions from my (completely separate) employee 401K? I don't want to under-contribute or ov

er-contrtibute as there are penalties for both. For example, if I have contribute $7000 to the 401K sponsored by my employer and TT calculates that I can contribute $6000 to my solo 401K based on my 1099 earnings, do I go ahead and transfer $6000 to the solo 401K or do I do nothing because I already went over $6000 in the employer sponsored 401K?

1 Best answer

Accepted Solutions
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

When calculating your maximum solo 401(k) contribution, TurboTax is incapable of taking into account your elective deferrals or Roth contributions at your W-2 employer.  This is a published limitation of TurboTax.

You could manually calculate and enter your maximum permissible regular elective deferral or Roth contribution, the tell TurboTax to maximize a Profit Sharing Keogh contribution to allow TurboTax to automatically calculate the employer contribution.  However, in your example your elective deferrals to the solo 401(k) are limited by your net earnings from self-employment such that the total of your elective deferrals to the W-2 employer's 401(k) plan and your solo 401(k) plan will not exceed the $18,000 regular elective deferral plus Roth contribution limit, so you can simply use TurboTax's 401(k) maximize function to determine your maximum permissible elective deferral.  The result is the amount that you must contribute to the solo 401(k) as elective deferral.  No employer contribution to the solo 401(k) will be possible because all of your available net earnings from self-employment will have gone to make the elective deferral.

If you are under the AGI limit for being able to deduct a traditional IRA contribution, you might consider making a portion of what would otherwise be a solo 401(k) elective deferral be a traditional IRA contribution instead.  There are fewer restrictions to accessing funds in a traditional IRA and, by reducing the amount contributed to the solo 401(k), you reduce the chance that your balance in the solo 401(k) will reach the $250,000 threshold where Form 5500EZ reporting is required of the solo 401(k).

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11 Replies
jeffrey-bryant7
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

i have a similar situation and need help
W2 Employer - I made 18,500 plus 6,000 catch up (I'm 52).
1099 Income Earnings 80k - TT shows i can allow approx. 12k to solo SEP 401k in addtion
Total Contributions $36k
Zbucklyo
Level 9

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

You can make the employer (not employee) contribution to the solo 401k, which according to my calculations is a bit higher than 12K, but I would trust Turbotax because there may be something else going on here , like self-employed health insurance.
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

There is no such thing as a "SEP 401(k)."  SEP plans are IRA-based plans, not 401(k)-based plans.  Perhaps you are referring to a self-employed, solo or individual 401(k) (all different names for the same thing).

The answer below applies to your situation the same as it did to the person who posted the original question.  To get TurboTax to calculate only the maximum employer contribution use the Maximize function for either a SEP contribution or a Profit Sharing Keogh, not the Maximize function for a 401(k).  You are not permitted any elective deferral to any type of self-employed retirement plan because you've already made the maximum permissible total elective deferral for 2018.
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

When calculating your maximum solo 401(k) contribution, TurboTax is incapable of taking into account your elective deferrals or Roth contributions at your W-2 employer.  This is a published limitation of TurboTax.

You could manually calculate and enter your maximum permissible regular elective deferral or Roth contribution, the tell TurboTax to maximize a Profit Sharing Keogh contribution to allow TurboTax to automatically calculate the employer contribution.  However, in your example your elective deferrals to the solo 401(k) are limited by your net earnings from self-employment such that the total of your elective deferrals to the W-2 employer's 401(k) plan and your solo 401(k) plan will not exceed the $18,000 regular elective deferral plus Roth contribution limit, so you can simply use TurboTax's 401(k) maximize function to determine your maximum permissible elective deferral.  The result is the amount that you must contribute to the solo 401(k) as elective deferral.  No employer contribution to the solo 401(k) will be possible because all of your available net earnings from self-employment will have gone to make the elective deferral.

If you are under the AGI limit for being able to deduct a traditional IRA contribution, you might consider making a portion of what would otherwise be a solo 401(k) elective deferral be a traditional IRA contribution instead.  There are fewer restrictions to accessing funds in a traditional IRA and, by reducing the amount contributed to the solo 401(k), you reduce the chance that your balance in the solo 401(k) will reach the $250,000 threshold where Form 5500EZ reporting is required of the solo 401(k).

Rebecca2010
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

Thank you for the information. Doing the "maximize self-employed Keogh" didn't change any of the numbers. Also, does it matter how much I put into each account? (I didn't give you the correct #s before - I have $7K in the W2 based 401K, and TT said I have a maximum of $14,500 for "SEP/SIMPLE or other qualified plans") Is it a maximum contribution of 20% of my profit into the SEP and everything else into the solo 401K?
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

"Doing the 'maximize self-employed Keogh' didn't change any of the numbers."

Where do you see "maximize self-employed Keogh?"  The Maximize boxes are labeled "Maximize Contribution to Individual 401(k)," "Money Purchase Keogh," "Profit Sharing Keogh," and "SEP."  You should only be marking one of these.

I'm not sure where TurboTax presents "maximum of $14,500 for SEP/SIMPLE or other qualified plans" or what is included in that total; I don't know if it includes the $7,000 from your W-2.  The online screens are sometimes different than those presented by the CD/download version.  If the $14,500 represents only your self-employed retirement contribution that appears on Form 1040 line 28, you might be claiming total elective deferrals between your W-2 job and your self-employment for the year of more than permitted.  For 2017, your elective deferrals combined are not permitted to exceed $18,000 if you are under age 50 or $24,000 if age 50 or older in 2017.

To be able to  give a more specific answer, it would be helpful to know if you were age 50 or over in 2017 and your net profit from self employment.  From what you've already stated, I'm guessing that your net profit is somewhere between $6,000 and $16,000.
Rebecca2010
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

As per the suggestion of dmertz, I checked the maximize box for Profit Sharing Keogh in order to get the program to tell me how much I could contribute as the "employer" of my sole proprietor business. I don't actually have a Keogh of any type, but I guess this is a work-around. In the past, including last year, I have maximized my SEP and my solo 401K on the same return.
The maximum total comes from the "Self-Employed Retirement Plans" section of" Business Income and Expenses"and the "Keogh, SEP and SIMPLE Contribution Worksheet", which also has entries for Individual 401Ks

I am well over 50, and the total profit was around $15K. I don't know if the $14,5 (which popped up on the "Business" portion of the return) includes the $7K from the W2 either. The worksheet calls it "Maximum Keogh, SEP, SIMPLE, and/or 401(k) deduction allowed, not including defined benefit plan contribution(s)" It wouldn't make sense that having self-employed earnings in addition to wages would DECREASE the total that I can contribute to all my retirement plans. Not that it has to make sense.
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

Generally, it doesn't make too much sense to contribute to both a SEP plan and a solo 401(k) plan in the same year.  Your total employer contribution would simply be split between the two.  In TurboTax, marking Maximize for both a SEP plan and a solo 401(k) plan will result in no more being able to be contributed than marking Maximum for only the solo 401(k).  Also note that a SEP plan based on a Form 5305-SEP agreement is not permitted to be maintained in the same year as a solo 401(k).  Contributing to a SEP and a solo 401(k) in the same year requires using a SEP plan agreement other than Form 5305-SEP.  (Some custodians provide you their own prototype SEP plan agreements to use.)

Having $15,000 of self-employment net profit means that the $14,500 that TurboTax is indicating is for the self-employment elective deferrals and employer contributions combined.  This can be accomplished by making it all as elective deferrals to the solo 401(k) since doing so would only bring your total elective deferrals, including those made at your W-2 employer, to about $21,500, less than the $24,000 limit for someone over age 50, so there is no need for you to use the Profit Sharing Keogh workaround.  You maximum contribution could also be accomplished by making the maximum employer contribution of about $2,780 and allocating the other $11,720 or so of the $14,500 as elective deferrals.  Allocate any less than $11,720 or so to elective deferrals in the solo 401(k) and you won't be maximizing your contribution.  If you are permitted to maintain a SEP plan and a solo 401(k) plan in the same year, the $2,780 of employer contributions would be split between the two.

In my own case, I simply terminated my SEP plan at the end of one tax year and established a solo 401(k) plan to receive all of my contributions for the following year and beyond.  My investment options and distribution options were the same for both plans, so it made no sense to maintain both since making the maximum permissible contribution to the solo 401(k) meant that I could contribute nothing to a SEP plan (and my SEP plan was based on Form 5305-SEP, so I was prohibited from maintaining both anyway) .
Rebecca2010
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

Thank you! This was very helpful.
JP21
New Member

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

Is this still true for 2018 Tax return?  Is TurboTax still incapable of including both W2 and 1099 accounts when calculating the max individual 401K contribution?
dmertz
Level 15

I have an employer sponsored 401K from W2 earnings and also a solo 401k from my 1099 earnings. Does the maximized SEP/401K contributions include both accounts?

There have been no changes in TurboTax with regard to this.
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