FAQ 876: Budget--Limit the total allocation for a self-employed individual to 100% of pay

Problem: Shouldn't ASC limit the total allocation for a self-employed individual to 100% of pay (even if the full catch-up contribution was made) since a sole proprietorship can't have a net operating loss? In this case it gave the participant 100% of pay plus the $5,500 catch-up (the CPA's software won't take the numbers).

Solution: In order to get the system to calculate their 415 limit correctly, you will need to add back their catchup contributions to their deferral amount under the Contribution (CONTRIB) screen. Then you can run the Budget Routine again and the system will limit their Employer contributions to their income amount after the self-employment taxes. You can then run the 402(g) utility to recharacterized any catchup contributions. When I ran the calculations again after adding back this participant's catchup amount, the system calculated a total of $22,669.88 in contributions which equals the participant's income amount ($22,000 in deferrals; 669.88 in safe harbor contribution). Then I was able to run the 402(g) report and recharacterized $5,500 deferrals as catchup contributions.