Turbo Tax limiting 401k contributions WHY?

[mesiodens]

Hi all,

Total newbie here wondering why Turbo Tax is limiting my contributions for myself.

I am self-employed with a safe harbor qualified plan in place for myself and employees; not a SEP or SIMPLE plan. I thought I should be able to contribute at least the maximum $18,000 salary deferral plus the $6,000 catch-up amount (yes, I'm old). But Turbo Tax runs some calculations on a worksheet that decrease the amount somewhat.

I checked the IRS Pub 560. It refers to a "Deduction Worksheet for Self-Employed" and states it is "only supposed to be used for self-employed". Do I fit that definition? I'm afraid I'm lost.

Any suggestions would be appreciated.

[Mike Preston]

Show the numbers on the worksheet if you want help. Without seeing them it is impossible to explain for certain. But my guess is that your self-employment income reduced by higher priority "reductions" leaves you with a number that doesn't support the $18,000 salary deferral limit. Tax return due on Monday, huh?

[spiritrider]

If you are a sole proprietorship and you file on a Schedule C, then you are self-employed. The "Deduction Worksheet for Self-Employed" is applicable to you, but is only used to calculate and possibly limit the employer contribution.

The employee deferral + catch-up contribution is only limited by the requirement that it can not be more than 100% of (net business profit - 1/2 SE tax). There is no reduction I am aware of that can reduce this. On Form 1040 line 29 the self-employed health insurance deduction can be reduced by (line 27 1/2 SE tax + line 28 retirement plan contributions), but not the other way around, although you can voluntarily reduce the retirement contributions to max the health insurance deduction.

So if you have sufficient net self-employment income, there should be no reason that you can not make the full employee deferral + catch-up contribution + 20% of the net self-employment income from the worksheet..

[ESOP Guy]

I find Turbo Tax can explain and justify what their software does rather well.

That isn't to say I haven't seen it have an error in its programming. After all they do put out patches so they are correcting something. But by this time in the year you simply aren't the first self employed person to try and have it figure out this deduction. So if I were a betting man I would bet on Turbo Tax being correct and either you have coded something about yourself wrong or you misunderstand. The above explanations are the most likely reasons but give them a call.

[mesiodens]

Thanks to all for your input.

My self-employment income is sufficient to support the contributions per Spiritrider above.

It looks like I was entering the data in the wrong fields causing Turbo Tax to think I contributed too much for my situation.

Yes, tax return & 5500 were filed on Sunday, Oct 16. Before the deadline by a nose! (Ouch!)