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Level 1

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Checking the box to calculate maximum contributions seems to not provide the full 20% of profit for profit-sharing contributions.

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Level 20

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Your net profit is in the range where your contribution is subject to the little known limitation that your total contribution is not permitted to exceed net earnings reduced by your employer contribution.  That works out to $18,000 of elective deferral plus $1,254 of employer contribution:

  • Net profit = $22,067
  • Self employment tax = $3,118
  • The deduction for ½ SE tax = $1,559
  • Net earnings = $20,508
  • Net earnings minus the elective deferral = $20,508 - $18,000 = $2,508
  • Employer contribution = ½ of $2,508 = $1,254
  • Total contribution = $18,000 + $1,254 = $19,254
  • Net earnings minus employer contribution = $20,508 - $1,254 = $19,254

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4 Replies
Level 20

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Your net profit is in the range where your contribution is subject to the little known limitation that your total contribution is not permitted to exceed net earnings reduced by your employer contribution.  That works out to $18,000 of elective deferral plus $1,254 of employer contribution:

  • Net profit = $22,067
  • Self employment tax = $3,118
  • The deduction for ½ SE tax = $1,559
  • Net earnings = $20,508
  • Net earnings minus the elective deferral = $20,508 - $18,000 = $2,508
  • Employer contribution = ½ of $2,508 = $1,254
  • Total contribution = $18,000 + $1,254 = $19,254
  • Net earnings minus employer contribution = $20,508 - $1,254 = $19,254

View solution in original post

Level 1

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Thank you for the thorough and clear answer. Very helpful!
Level 20

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

For what it's worth, for someone under age 50 who is not maxing out the Social Security wage base at another employer, this particular limitation is the limiting factor for 2017 only between $19,370 and $32,275 of net profit.  Below that range there is no employer contribution (the maximum contribution is achieved by making it all elective deferral) and above that range net profit is sufficient to support the full employer contribution of 20% of net earnings (until the overall limit of $54,000 is reached).
Level 1

Why does TurboTax not calculate my maximum solo 401k contribution as $18,000 + 20% of profit for single member LLC? ($22,067 profit gives limit of $19,254)

Good to know! Thank you!