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Farindola
Level 1
Apr 13, 2024 6:38 AM UTC
Solved

Traditional SEP Contributions

I do not understand TurboTax's calculation of my max contribution. The IRS says I may contribute 25% of my net, yet which is twice what TurboTax is calculating. I have already made the contribution and TurboTax is telling me to withdraw the difference or get penalized. Any help is appreciated. Thank you.

    dmertzAnswer
    Level 15
    Apr 13, 2024 11:32 AM UTC

    The base rate of 25% must be adjusted to 20% for a self-employed individual because the SEP contribution is an employer contribution that effectively reduces net earnings.  The maximum SEP contribution for a self-employed individual is 20% of net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes.

     

    Excess SEP contributions are subject to a 10% excess-contribution penalty on Form 5330.  TurboTax does not support Form 5330.

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    1 reply

    dmertzAnswer
    Level 15
    Apr 13, 2024 11:32 AM UTC

    The base rate of 25% must be adjusted to 20% for a self-employed individual because the SEP contribution is an employer contribution that effectively reduces net earnings.  The maximum SEP contribution for a self-employed individual is 20% of net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes.

     

    Excess SEP contributions are subject to a 10% excess-contribution penalty on Form 5330.  TurboTax does not support Form 5330.

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