enter individual 401K and w-2 401k election

[rosenhol807]

I have TT home and business 2019.  I contributed 4000 to a 401K plan with a new employer.  I also had a lot of self-employment income and want to max out my individual 401K contributions.  Where in TT do I enter this and make sure it deducts the $4K I contributed to my new employer's plan.  While in business sections, I selected "compute the maximum deductible contribution" but I don't think it's backing out the $4K.

Any advice would be appreciated

[dmertz · Accepted solution]

TurboTax is unable to perform this calculation.  You yourself must calculate and explicitly enter in the individual 401(k) section the amount of elective deferral you are permitted to make.  Do not mark the Maximize box for an individual 401(k).

To get TurboTax to calculate the maximum permissible employer contribution, tell TurboTax to Maximize either a SEP IRA contribution or a Keogh Profit Sharing contribution.  The calculation of the maximum permissible employer contribution is the same for these as it is for an individual 401(k), but these do not have elective deferrals.

[zippy24]

1. Does this response mean that the 'Maximize Box' should never be used for Individual 401K?  

2. I'm having trouble figuring out what this 'Maximize Box' is used for.   When I enter my current contributions to individual 401k ( $8000 employer contribution, $7000 employee contribution) and then check it, my tax due goes way down.  

3.  How do I tell that these amounts saved pre-tax for retirement are not included in my tax calculations? 

[dmertz]

1.  Not at all.  The question and answer in this thread applies specifically to the case where an individual makes elective deferrals or Roth contributions to both an individual 401(k) and a 401(k) at a separate employer.

2.  The Maximize box causes TurboTax to calculate the maximum permissible contribution by completing the calculations in the Deduction Worksheet for Self-Employed in IRS Pub 560, a worksheet that only applies to an individual who participates in only one defined contribution plan.  If TurboTax is calculating a higher deductible amount than the amount you explicitly entered, it means that your combined employee elective deferrals and Roth contributions plus your employer contribution are less than the permissible maximum.  By marking the Maximize box you are also telling TurboTax that you will be making all of the contributions necessary to allow the maximum deduction and that you have made no employee contributions for the year to another employer's plan.

3.  The self-employed retirement deduction appears on line 15 of Schedule 1.

[Fantaki1]

So basically, it seems that for those who have a 401(k) through an employer, to which they make employee contributions (with/without employer match), but also an individual 401(k),  the "maximize contributions" button should not be used, as it does not take the employee contributions to the first 401(k) into account when calculating the amount of elective deferral ("employee" contributions) in the i401(k).  Is that correct?   

Shouldn't that be somehow corrected in the software, or at least have it raise a flag when checking for errors?

[LindaS5247]

The "maximized contribution" button is simply a tool to help calculate what your maximum contribution limit is given the information you have already entered into the program.  Generally, it would be used by someone who hasn't yet contributed to their plan when doing their taxes and wants to know what the maximum amount they can contribute is - so, they can check that box and then TurboTax will run a calculation and tell them a contribution amount.  Then, they can contribute that amount by their plans due date.  

[dmertz]

@Fantaki1  , that's correct.  Intuit has apparently made a business decision to limit the implementation of the Maximize function to doing just the calculation provided by the IRS on the Deduction Worksheet for Self-Employed from IRS Pub 560.  The instructions for this worksheet in Pub 560 indicate that it cannot be used by an individual who also makes employee elective deferrals or Roth contributions to another qualified retirement plan.  Unfortunately, even TurboTax's On Demand Tax Guidance displayed when you click the Learn More link fails to tell you that you cannot use the Maximize function if you make employee contributions to another plan.

[Fantaki1]

Thanks for the answer.

The problem is that employee contributions are made throughout the year, while TurboTax is used in the following year, when only employer contributions are still possible (although not sure about deadline of employee elective deferral to i401(k))

[dmertz]

For the self-employed individual, the deadline to make the election is year-end but the deposit of the employee contribution can be made after that, as soon as is practicable.  (One needs to know that they have sufficient net earnings to support the elective deferral.)