403(b) service-based catch-up (elective deferral) for employees with 15 or more years of service (Teacher) - Turbo Tax is INCORRECT

[NotHappyWithT-Tax]

Hello community and thank you for reading this.

My wife is an elementary teacher with 22 years of service to her school district. 

In 2025, she contributed $26,500 to her 403(b) account.

$23,500 maximum contribution + $3000 service based catch-up = $26,500 represented Box 12a code E.

I have reviewed Pub 571, worksheet 1 and indeed, she is allowed a Maximum Amount Contributable (MAC) of $26,500 because she only has elective deferrals.  Pub 571 does a good job explaining these terms and the worksheet explains things well. 

After completing the income section, Turbo Tax indicates an overpayment and instructs me, I believe, inappropriately.  From the screenshot below, I'm directed to Pub 560.  Through my own research, Pub 571 defines this portion of the tax code.

I have reviewed Pub 571, worksheet 1 and indeed, she is allowed a Maximum Amount Contributable (MAC) of $26,500 because she only has elective deferrals.  Pub 571 does a good job explaining these terms and the worksheet explains things well. 

I'm not quite sure how to proceed with Turbo Tax with this issue.  Any advice?

[RogerD1 · Accepted solution]

Since you have determined by using the worksheet in IRS Publication 571 that the additional $3000 contribution for your wife's service is allowed, then you can safely ignore the warning in TurboTax and it will not trigger errors that will disallow filing, nor will it generate any forms for penalties of overcontribution.

The screen "Let's Check Your Retirement Contributions" in TurboTax does say that "The maximum most people under age 50 can contribute to all salary deferral retirement plans for 2025 is $23,500".  On that same screen, there is guidance on what to do if the total contribution is above the allowable amount under the "What Steps Do I Need to Take?" link

[NotHappyWithT-Tax · Accepted solution]

RogerD1,

Thank you for your response!

I take your point that the warning does say "MOST people."

I am a touch concerned that there is no area / form to indicate that this is a service based contribution.  In Pub 571, Section 4, the 15 year rule is described in detail.   How does the IRS know that this is the case  - or to ask another way, how do I know that this won't get audited after I submit?

I apologize in advance & I'm just looking for certainty before I file.

Best!

[RogerD1 · Accepted solution]

It is impossible to guarantee that a tax return will not be audited by the IRS.

The IRS audits approximately 4 out of 1000 returns per year, according to recent data.  While that is a low rate, there is never any guarantee that the IRS will not audit a tax return regardless of the taxpayer situation as some returns are drawn randomly for audit.

As you mentioned, there isn't anywhere to indicate the $3000 catch-up contribution on the tax return as the IRS has no reporting requirements for this.  As such, you can feel confident that your return is conforming to the tax law in this regard.

Most IRS audits involve sending a letter where they may require more information.  In your case, the extra $3000 of contributions does conform to the tax law.  This link from the IRS has good information on the 403(b) catch-up contributions:  IRS 403(b) catch-up contributions.  

[NotHappyWithT-Tax]

RodgerD1,

Thanks so much for your time and support!  I really appreciate the explanation and link you shared.  Hopefully someone else might find this thread and consider it useful as well. 

I feel much more confident proceeding and finishing up our taxes.  Thanks again.