After-tax elective deferral contribution to a Solo 401K

[Centeno]

In 2022 I maxed out the contributions to a Roth 401K with my primary employer ($20,500). I also made a $4,000 elective deferral contribution to my traditional Solo 401K (I had a side business with net income ~5K).

I expected TurboTax to treat my elective deferral Solo contribution as an after-tax contribution since in aggregate all my contributions exceed the IRS maximum elective contribution limits.

But Turbo Tax is treating my solo as a pre-tax contribution (reducing my owed tax). What am I missing?

Any tips/advice on what to check on turbo tax to make sure my Solo contribution is treated as after-tax?

Thanks...

[dmertz · Accepted solution]

An after-tax contribution to a 401(k) is not an elective deferral.  Elective deferrals are the contributions that are subject to the $20,500 limit (for 2022).  TurboTax is unable to handle the calculation of your maximum  permissible contribution if you have made elective deferrals or Roth contributions to another employer's plan.

You'll have to do the calculation of the permissible employer contribution and after-tax contribution yourself.  In the absence of an after-tax contribution, you could use the Maximize function for a SEP contribution to calculation the maximum employer contribution, but when you make an after-tax contribution, which is reportable nowhere on your tax return, you yourself must also make sure that the sum of all of the contributions you make to the solo 401(k), both as employer and as employee, does not exceed the net earnings from self-employment.

[dmertz · Accepted solution]

One other note.  You've indicated that you are using TurboTax Business.  If your solo 401(k) plan is established under a business for which you would use TurboTax Business, the only case I can think of where you would be asking TurboTax to enforce solo 401(k) contribution limits on your individual tax return would be if the business was a partnership with the only partners being spouses and there are no employees.  In that case the contributions would have to be present with code R in box 13 of the Schedule K-1 (Form 1065) and that should show only the deductible contributions, not any after-tax contributions (because box 13 is for deductions that are being passed through).

[Centeno]

@dmertz thanks for the answer, but just to clarify, I use the "Home and Business" edition of turbotax.

On tab Personal I entered my W2 (Box 12AA = $20,500 for the Roth)

On tab Business I entered all my business info, including Self-Employed retirement. Under Individual 401K Elective Deferral I entered $4,000.

Why turbo tax did not give me a warning saying that my total elective contribution was over the limit? It has all the data (Roth from personal + elective deferral).

If Turbo Tax had given me the warning this would help me realize the I should not enter the 4000 as elective deferral (since it is after tax).

Does that make sense?

[dmertz]

"Why turbo tax did not give me a warning saying that my total elective contribution was over the limit?"

Such a feature was simply never implemented in TurboTax.