415(c)(1)(A) limit on tax deferred retirement contributions

[jmarks726]

Does turbotax use the 415(c) limit on total deferred contributions already made to a 403(b) plan when calculating the maximum allowed employer and employee contributions to a solo 401(k)?

I want to be sure I don't over-contribute.

[dmertz]

Yes, TurboTax implements the Deduction Worksheet for Self-Employed in Chapter 5 of IRS Pub 560.  The 415(c)(1)(A) limit appears on line 8 of that worksheet.

Be aware that TurboTax and that worksheet do not directly handle the case where you also made elective deferrals or Roth contributions to a similar plan and another employers.  Of course that subject to the 402(g) limit, not the 415(c) limit, but I though it was worth mentioning.

[jmarks726]

Thank you for pointing me to the pub 560 sec 5 worksheet.

I don't see any reference in that chart to employer contributions - only employee contributions.

Doesn't the 451c limit also include employer contributions?

This is important, because a solo 401(k) plan allows the employer and the employee to make tax deferred contributions.

Thus, if my employer makes contributions to my 403(b), does this not affect how much I, as the solo 401(k) employER, can contribute?

I am having trouble understanding the example provided in this IRS link.

Many thanks

[dmertz · Accepted solution]

Yes, 415(c) defines an overall limit, including elective deferrals or Roth contributions.  The 415(c) limit is imposed on line 14 of that worksheet.  The 404(a)(3)(A)(i)(I) limit of 25% of compensation for just the employer portion of the contributions is implemented on lines 5 through 7.  In the Maximize function TurboTax assumes a base contribution rate of 25% which results in the rate from the Rate Table for Self-Employed of 20%.

If you work at another job where you make elective deferrals or Roth contributions to a 403(b) plan, that worksheet cannot be used and you cannot use TurboTax's Maximize function for individual 401(k) contributions.  You'll need to manually calculate and enter the permissible elective deferral or Roth contribution.  In addition to that, participation in both plans means that not only must contributions on your behalf to plan separately satisfy 415(c)(1), the aggregate of the contributions to the two plans must also satisfy 415(c)(1).  Depending on the amounts, this could even mean that your elective deferrals to the individual 401(k) plan are limited to less than the 402(g) limit due to the aggregated 415(c) limit.  In the case where you are not limited by the 415(c) limit being applied to the aggregate, you can cause TurboTax to calculate the maximum employer contribution by telling TurboTax to calculate the maximum contribution for a SEP or Profit Sharing Keogh.

[jmarks726]

Thanks so much. Really helpful!