Maximize Contribution to Individual 401(k) under Business taking into account Personal 401(k)?

[klewmrwenotwekt]

I chose "Maximize Contribution to Individual 401(k)" under Business and it gave me $27866 on a $50000 business income. I also already contributed $18000 to a 401(k) from my Personal W2 job, which was added in the personal section. Is the $27866 taking that into account, or is it incorrectly adding $18000? i.e. should I really only be able to contribute $9866 for my Individual 401(k)?

[dmertz]

No, TurboTax does not have the ability to consider the $18,000 in elective deferrals that you made to your W-2 job.  Unmark the Maximize box on the Individual 401(k) page and instead mark the Maximize box for a Profit Sharing Keogh.  This will cause TurboTax to Maximize the employer contribution only.

(Presumably box 3 of your W-2 is 118,500, otherwise your maximum employer contribution would be less than $9,866.)

[klewmrwenotwekt]

Thanks for the response! Any idea why TurboTax can't consider the $18,000 in elective deferrals on the W-2? I did add it to TurboTax under box 12a (code D for 401(k)).

Also just curious, why does box 3 of my W-2 affect employer contribution maximum? I don't think it matters because my MAGI for W-2 income is over $118,500 - but I can't find anything relating social security wages to employer contribution maximum. As far as I can tell it's always just 20% of SE income, which for me this year was $50,000 in 1099-MISC income (before SE taxes). For what it's worth, my W-2 employer did not contribute anything to the 401(k).

[dmertz]

TurboTax's self-employed 401(k) Maximize function simply wasn't programmed to handle this situation where the self-employed person also makes elective deferrals or Roth contributions to another employer's plan .  It's a known (but not advertised) limitation of TurboTax that Intuit has chosen to leave as an unsupported calculation.

Regarding box 3 of you W-2, your the Social Security portion of your self-employment taxes are calculated on only the amount necessary to reach the $118,500 Social Security wage base when combined with the income subject to Social Security tax shown in box 3 of your W-2s.  Since you mentioned a maximum individual 401(k) employer contribution of $9,866, it was easy to determine that none of your net profit from self-employment was subject to Social Security tax.  Your net earnings on which your maximum (20%) employer contribution is calculated is your net profit minus the deductible portion of self-employment taxes.  Since, as a result of your W-2 income, you are subject to less self-employment taxes than someone whose total compensation does not reach the Social Security wage base, your employer contribution is higher than it would be for someone who had to pay more in self-employment taxes on the same amount of net profit.

[klewmrwenotwekt]

Got it, makes a lot of sense! Thanks for the response!

[saudahmirza]

This solution worked beautifully. Thanks so much.