Question

Maximized IRA-SEP Contribution Calculated Incorrectly?

Forum|Forum|3 years ago
March 30, 2023
1 reply
0 views

A couple of weeks ago I completed my federal tax return. During the process, I requested that TurboTax auto-calculate (maximize) my IRA-SEP contribution for 2022 -- I'm a sole proprietor. I've done this for a number of years without a hitch.

This year, it appears to have made a mistake (at least from what I can tell), but I didn't see it before I filed my return. Fortunately, I haven't made my SEP contribution yet.

What it did is that it calculated the maximum SEP for 2022 (I had sufficient income to max it out), but THEN it also applied the catch-up amount (an additional 6,500). And, from what I've read (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions) IRA-SEPs are not eligible for catch-up contributions.

I went back through the process for this in TurboTax thinking maybe I had incorrectly indicated it was a 401K (for which catch-up contributions are allowed), but no: it clearly says I'm filling out information for an SEP (I have screen shots if needed).

Now my question: why did TurboTax apply a catch-up contribution to an IRA-SEP calculation? Is this an error like I think it is?

As it stands, I think I'll need to amend my return--to show the smaller amount without the catch-up contribution. I know where on the underlying forms that TurboTax applied that, so should be trivial to reverse that part of the calculation.

But this is the first time I've run across this so wanted to double-check whether I'm confused on some point?

Thanks!

A

acg1373Author

OK - so, I went into the forms view and drilled down to where the 6,500 was applied (Keogh/SEP Wks, III.17 Allowable catch-up contributions) and that linked to part III.8 which states "Note: The program will automatically calculate the allowable elective deferrals to your Individual 401(k) if you have any entries in Part I, line 6.

Sure enough, the checkbox in Part I, 6f (under Individual 401k) was checked! Once I unchecked that, the maximum adjusted down to remove the catch-up contribution.

So now the mystery (on my end) is how that checkbox for 401(k) got checked during the interview process. It's a mystery to me, but at least I understand what went wrong.

It is, of course, possible that I somehow did something that led to that outcome, but I sure don't know what it was as I never filled anything out related to 401(k) since I've never had one.

DawnC

Employee

I am just guessing here, but when you click Start next to Self-Employed Retirement Plans, the first screen asks about Individual or Roth 401ks, but the larger printed title says Self-Employed Retirement Plans. So, it is possible that you answered Yes there instead of No? Then next screen asks about Keogh, SEP, and SIMPLE. Either way, I am glad you have it straightened out now.

Screen #1

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

A

acg1373Author

Thanks for the prompt and helpful suggestion what likely went wrong.

I think you are probably right on -- I probably focused on the major title and went past the part that specified 401K, then through to the SEP part and didn't notice the extra step which wound up with the checkbox in the underlying form.

It might be a point of feedback to (somehow) make it clearer in the title that his part isn't about self-employed retirement in general, but specific to 401(k). Of course, looking at it in hindsight seems clear, but I do count myself as a careful individual (I'm a software engineer who deals with lots of details) and I still managed to click right through it... evidently.

Thanks