I earned 10K self employment income. I contributed 10K to an Individual 401K. TT software says I can only contribute 9270 to 401K. My max is 19,500. Why does TT say 9270?

[cjallo]

I put the full amount of my self employment income into an Individual 401K. TT software says I over contributed and will pay a penalty, why? What am I inputting wrong here?

[ColeenD3]

You forgot to take into account one half of SE tax.

Contribution limits for self-employed individuals

You must make a special computation to figure the maximum amount of elective deferrals and non-elective contributions you can make for yourself. When figuring the contribution, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both:

• one-half of your self-employment tax, and
• contributions for yourself.

[dmertz]

TurboTax is correct.  The maximum that you are permitted to the individual 401(k) is your net profit from self-employment minus the deductible portion of self-employment taxes.  With $9,975 of net profit, the deductible portion of self-employment taxes would typically be $705, leaving only $9,270 available to contribute to the individual 401(k).  You must obtain a return of the excess contribution or risk the plan being disqualified.