For Home & Business 2020, the "Maximize Contribution to Individual 401(k)" calculation is incorrect

[bbobbo]

The calculation when checking the "Maximize Contribution to Individual 401(k)" box under "Individual and Roth 401(k) Plans" is still using the 2019 maximum elective deferral amount of $19,000 instead of the 2020 amount of $19,500.

If you view the supporting "Keogh/SEP Wks" form, Part III Step 9 enters the 2019 amount of $19,000:

However, if you right click on the Step 9 amount and select "About Step 9 Elect def, sp", the On Demand Tax Guidance shows the correct $19,500 amount for 2020.

I can override this amount in the worksheet to put in the correct amount, but this should be fixed for anyone else who is relying on TurboTax to calculate their maximum contribution.

[AmyC]

Thank you so much for the pictures and taking the time out of your day. As the IRS finalizes forms, the software changes.

The contribution limit for 2020 is indeed $19,500.

[Edited 01/13/2021 |:3:43pm PST]

[dmertz]

Despite these changes to the limits always being announced by the IRS more than a year before the release of corresponding version of TurboTax, TurboTax always fails to update these and some other cost-of-living-adjusted values in the software in a timely manner.  The only practical workaround to this TurboTax policy is to use the CD/download version of TurboTax, use overrides to correct the erroneous values and calculation results, then cancel the overrides before actually filing after TurboTax makes the corrections.

[gn323]

Same issue with the max catch up contribution. Need to override to 6500 versus 6000 on line 17.

[dmertz]

@Katie_B , this problem was reported back in November, has still not been corrected, and TurboTax apparently allows filing with this erroneous calculation.  Is this still on the bug list after only one of the several errors on the Keogh, SEP and SIMPLE Contributions Worksheet was corrected?  There are still errors on Part III lines 9 and 17 and Part V line 1 of this worksheet.

[Katie_B]

@dmertz I do not seeing anything currently open on this, but I am definitely taking a look. That being said, @bbobbo could I please grab the diag file from you for testing?

To do this, go to "Online" on the top banner, then select "Send Tax File to Agent". It will give you 2 pop-ups, the first one is a confirmation. The second pop-up will have a 6 digit token number. 

At first glance, I do notice that my own program does have the correct limits listed in the text of lines 9 and 17 (not the calculation, but the text of the line itself). This may be a sign that it's being updated, but the diag file will help me determine more precisely what's going on. 

[dmertz]

@Katie_B , it seems doubtful that you are seeing the correct limits of $19,500 and $6,500 on lines 9 and 17, respectively.  Today's release, R16, still shows the 2019 limits of $19,000 and $6,000, respectively, being used in the calculations although the instruction text for these lines has been updated to show the 2020 limits.

However, I was mistaken that the calculation on Part V line 1 is incorrect, and that's probably what actually matters for filing, so the problem is not as bad as I thought.  The calculation on this line was corrected one week ago in release R15.

It's a bit unnerving that TurboTax displays all of the calculations on Part III then uses none of it to come up with the amount to use on Part V line 1, instead doing the same calculation as a hidden calculation.  However, it's not something I was previously unaware of.

I've uploaded a trivial test return, Token 725888, that has nothing but $100,000 of net profit from self-employment and a maximized 401(k) self-employed retirement contribution.  Simply open the Keogh, SEP and SIMPLE Contributions Worksheet to see that the incorrect values are on Part III lines 9 and 17 in the calculation.  Note that step-by-step mode does display on the Your Self-Employed Retirement Deduction page a value derived from the amounts on Part III lines 9 and 17, so users with sufficient income from self-employment are being mislead as to how much they are truly eligible to contribute.  (That page is also misleading in that it only shows elective deferrals and does not include the permissible employer contribution despite the title of the page.)