"Allowable elective deferrals" on Keogh, SEP and SIMPLE Contribution Worksheet

[djnicolson]

I have an individual 401k for my sole proprietorship. In 2024 I made $10,000 in elective deferrals (employee contributions). TurboTax is figuring the maximum deductible contribution using its Keogh, SEP and SIMPLE Contribution Worksheet, which corresponds to the "Deduction Worksheet for Self-Employed" in Pub 560. On Step 9 of its worksheet, it has entered $23,000, which is the maximum amount of elective deferrals allowed to 401k plans. However, step 9 of pub 560 says, "Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan." It seems to me that step 9 should be $10,000, not $23,000, because $10,000 is the amount that was actually "made to [my] self-employed plan". This results in quite a different result for my maximum deductible contribution. Is it a bug?

[KeshaH]

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[djnicolson]

Thank you! Token # 1285444

[dmertz]

$23,000 on line 9 is correct.  This line on TurboTax's worksheet is for the 2024 statutory limit.

TurboTax's worksheet operates a bit differently than the worksheet from Pub 560 so as to support TurboTax's Maximize function for an individual 401(k) contribution.  Part III of TurboTax's worksheet is used to calculate the maximum permissible contribution, which is why $23,000 appears on line 9.  Your actual contribution is compared to the maximum permissible contribution that was determined in Part III to determine the deductible amount that appears on line 2 of Part IV of TurboTax's worksheet.

[djnicolson]

Thanks for your response! I understand that TurboTax is attempting to maximize my contribution, as I requested. However, the result is that it is advising me the "Amount to Contribute by Plan Due Date" of $14,813. But it knows that I've already maxed out my $23,000 elective deferral limit for 2024 because I also made deferrals to a second 401k, which shows up on my W-2 from that job. So it would seem to be advising me to make a $14,813 employer contribution. But this would far exceed the limit for employer contributions of 20% of net earnings (Step 4 from the worksheet). Since it knows I'm ineligible for more elective deferrals, it should be advising me on the maximum additional employer contribution.

[KeshaH]

As @dmertz mentioned, step 9 is correct as it's reporting the allowable deferrals.

When TurboTax asks for your contributions to your 401k plans, you'll need to include the amounts added to your 401k through your employer. This will ensure TurboTax is properly calculating your maximum additional contributions.

@djnicolson 

[djnicolson]

If I enter $23,000 into the "Elective Deferrals" box for my Individual 401k, TurboTax fills out its "Keogh, SEP and SIMPLE Contribution Worksheet" as if I had deferred $23,000 to the Individual 401k. This is incorrect, since I did not defer $23,00 to my Individual 401k; I deferred $10,000 to my Individual 401k, and $13,000 to another 401k I had through an employer. This results in an incorrect calculations in Part III, lines 10-21 of the worksheet, with an incorrect "maximum deductible contribution for MP, PS, SEP & Individual 401(k) Plans" (line 21) of the worksheet. If I fill out the worksheet from Pub 560 with my actual numbers, I get a different (higher) result for line 21.

I still think this is a bug in TurboTax. Its algorithm for maximizing contributions for Individual 401ks does not seem to be correctly accounting for additional deferrals that were made to another 401k. You can't just add those other contributions into Part III, line 9, because that distorts the calculations that are specific to the Individual 401k, and you can't force line 9 to be $23,000 for the same reason.

[dmertz]

"I deferred $10,000 to my Individual 401k, and $13,000 to another 401k I had through an employer."

Then you should be entering $10,000, not $23,000, as your elective deferrals to the individual 401(k).  I'm not sure I understand what the point of entering $23,000 was since you know that you are permitted an elective deferral of only $10,000.

"Its algorithm for maximizing contributions for Individual 401ks does not seem to be correctly accounting for additional deferrals that were made to another 401k."

As previously mentioned, TurboTax has not been programmed to do that and is one of the documented limitations of TurboTax.

"You can't just add those other contributions into Part III, line 9,"

That's not what is happening.  Line 9 of TurboTax's worksheet does not serve the same purpose as line 9 of the worksheet from IRS Pub 560.  Line 9 of TurboTax's worksheet is the statutory maximum needed to support the calculation provided by TurboTax's Maximize function.  It is not for the the amount that you actually contributed.  When you have made elective deferrals to a different plan, you cannot use the TurboTax's Maximize function for a 401(k) contribution.

Unlike the TurboTax worksheet, the IRS worksheet is not used to calculate the maximum permissible contribution, which is a different use for line 9.

Perhaps what you are asking for is that TurboTax take into account elective deferrals or employee Roth contributions reported on Forms W-2 by subtracting them to produce the amount to use on line 9 of TurboTax's worksheet.  I agree that that could be a reasonable thing to do to expand the use of the Maximize function to those who make elective deferrals or employee Roth contributions to other plans, but I've seen no evidence that Intuit has any intention to do that.  They seem to have more trouble than they can handle just making the changes to TurboTax that are required keep up with changes in the tax code.

[djnicolson]

---

Thanks again for your responses.

@dmertz wrote:

"I deferred $10,000 to my Individual 401k, and $13,000 to another 401k I had through an employer."

Then you should be entering $10,000, not $23,000, as your elective deferrals to the individual 401(k).  I'm not sure I understand what the point of entering $23,000 was since you know that you are permitted an elective deferral of only $10,000.

I tried this because it was suggested by a previous poster.

"Its algorithm for maximizing contributions for Individual 401ks does not seem to be correctly accounting for additional deferrals that were made to another 401k."

As previously mentioned, TurboTax has not been programmed to do that and is one of the documented limitations of TurboTax.

I don't think this is documented well enough, if at all. TurboTax offered the maximize option even though it knew I had made 401k contributions to a different plan. It never warned me that the maximization it suggested would be wrong. If I hadn't been familiar with the tax publication and worksheet myself, I would have ended up following its instructions and over-contributing to my plan.

"You can't just add those other contributions into Part III, line 9,"

That's not what is happening.  Line 9 of TurboTax's worksheet does not serve the same purpose as line 9 of the worksheet from IRS Pub 560.  Line 9 of TurboTax's worksheet is the statutory maximum needed to support the calculation provided by TurboTax's Maximize function.  It is not for the the amount that you actually contributed.  When you have made elective deferrals to a different plan, you cannot use the TurboTax's Maximize function for a 401(k) contribution.

Right, but the product gives no warning about this and will confidently give you the wrong answer.

Unlike the TurboTax worksheet, the IRS worksheet is not used to calculate the maximum permissible contribution, which is a different use for line 9.

Perhaps what you are asking for is that TurboTax take into account elective deferrals or employee Roth contributions reported on Forms W-2 by subtracting them to produce the amount to use on line 9 of TurboTax's worksheet.  I agree that that could be a reasonable thing to do to expand the use of the Maximize function to those who make elective deferrals or employee Roth contributions to other plans, but I've seen no evidence that Intuit has any intention to do that.  They seem to have more trouble than they can handle just making the changes to TurboTax that are required keep up with changes in the tax code.

This would be ideal, but I would settle for the software not offering to do something it is unable to do correctly and then giving the wrong answer.

[dmertz]

All I can say is that this is a documented unsupported calculation.  See Retirement #8:

https://digitalasset.intuit.com/render/content/dam/intuit/cgcs/en_us/turbotax/pdfs/230125-2025-unsup...

[djnicolson]

OK, yes, I do see it documented there, thank you.

I did not discover that document in my investigations. If it is linked from the software, it was not easy for me to find.