Count only elective deferrals of self-employed plan contributions in the saver's credit

changelog.d/fix-savers-credit-se-elective-deferrals.fixed.md

@@ -0,0 +1 @@
+Count only the elective deferral part of a self-employed person's own plan contributions toward the saver's credit (26 U.S.C. 25B(d)(1)(B)): contributions beyond the section 402(g) and catch-up room left by deferrals to other employers' plans are SEP, profit-sharing or matching contributions.

policyengine_us/parameters/gov/irs/credits/retirement_saving/qualified_retirement_savings_contributions.yaml

@@ -1,4 +1,4 @@
-description: The IRA sums the following elements as qualified retirement savings contributions when computing the saver's credit.  
+description: The IRS sums the following elements as qualified retirement savings contributions when computing the saver's credit.
 values:
   2018-01-01:
     - traditional_ira_contributions
@@ -7,7 +7,7 @@ values:
     - traditional_403b_contributions
     - roth_401k_contributions
     - roth_403b_contributions
-    - self_employed_pension_contributions
+    - self_employed_pension_elective_deferrals
     - able_contributions_person
 
   2026-01-01:
@@ -17,7 +17,7 @@ values:
     - traditional_403b_contributions
     - roth_401k_contributions
     - roth_403b_contributions
-    - self_employed_pension_contributions
+    - self_employed_pension_elective_deferrals
 
 metadata:
   unit: list
@@ -26,7 +26,13 @@ metadata:
   reference:
     - title: 26 U.S. Code § 25B - (d)
       href: https://www.law.cornell.edu/uscode/text/26/25B#d_1
-    - title: 2023 Publication 590-A
-      href: https://www.irs.gov/pub/irs-pdf/p590a.pdf#page=45
-    - title: 2023 Form 8880
-      href: https://www.irs.gov/pub/irs-pdf/f8880.pdf#page=2
+    - title: 26 U.S. Code § 402(g)(3) - elective deferrals
+      href: https://www.law.cornell.edu/uscode/text/26/402#g_3
+    - title: 2025 Publication 590-A, eligible contributions
+      href: https://www.irs.gov/pub/irs-prior/p590a--2025.pdf#page=47
+    - title: 2022 Publication 590-A, eligible contributions
+      href: https://www.irs.gov/pub/irs-prior/p590a--2022.pdf#page=45
+    - title: 2025 Form 8880 instructions, line 2
+      href: https://www.irs.gov/pub/irs-prior/f8880--2025.pdf#page=2
+    - title: 2022 Form 8880 instructions, line 2
+      href: https://www.irs.gov/pub/irs-prior/f8880--2022.pdf#page=2

policyengine_us/tests/policy/baseline/gov/irs/credits/retirement_saving/savers_credit_person.yaml

@@ -317,3 +317,28 @@
     # 48,000 on the joint schedule (divided by 0.5), so the rate is 20%,
     # not the 50% that 22,000 (44,000) would give.
     savers_credit_person: 400
+
+- name: Self-employed employer contributions beyond the elective deferral room do not count toward the credit
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 30_000
+        traditional_401k_contributions_desired: 23_500
+        self_employment_income: 20_000
+        self_employed_pension_contributions_desired: 5_000
+        retirement_distributions: 22_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+        filing_status: SINGLE
+        adjusted_gross_income: 20_000
+  output:
+    # 26 U.S.C. 25B(d)(1)(B): the 401(k) deferrals use all $23,500 of
+    # elective deferral room, so the self-employed plan contributions are
+    # employer contributions. Qualified contributions are
+    # 23,500 + 0 - 22,000 = 1,500, and the 50% rate gives 750. Counting the
+    # $5,000 would give 6,500, capped at 2,000, and a credit of 1,000.
+    savers_credit_qualified_contributions: 1_500
+    savers_credit_person: 750

policyengine_us/tests/policy/baseline/gov/irs/credits/retirement_saving/savers_credit_qualified_contributions.yaml

@@ -33,11 +33,70 @@
   output:
     savers_credit_qualified_contributions: 0
 
-- name: Self-employed pension contributions count after applying the annual additions cap
+# 26 U.S.C. 25B(d)(1)(B) counts elective deferrals (402(g)(3)), not SEP,
+# profit-sharing or matching contributions a self-employed person makes for
+# themself. Self-employed plan contributions count only up to the elective
+# deferral room the person's other deferrals leave
+# (self_employed_pension_elective_deferrals).
+- name: Self-employed plan contributions count only up to the elective deferral limit.
   period: 2026
   input:
+    age: 40
     self_employment_income: 100_000
     self_employed_pension_contributions_desired: 100_000
   output:
-    self_employed_pension_contributions: 72_000
-    savers_credit_qualified_contributions: 72_000
+    # The 2026 limit is $24,500.
+    self_employed_pension_elective_deferrals: 24_500
+    savers_credit_qualified_contributions: 24_500
+
+- name: Self-employed plan contributions beyond the room left by employer-plan deferrals do not count.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 5_000
+  output:
+    # The 401(k) deferrals use all $23,500 of room.
+    savers_credit_qualified_contributions: 23_500
+
+- name: Self-employed plan contributions count up to the room left by employer-plan deferrals.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    ira_compensation: 10_000
+    roth_ira_contributions_desired: 2_000
+    traditional_403b_contributions_desired: 21_000
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 4_000
+  output:
+    # 21,000 + (23,500 - 21,000) + 2,000 of IRA contributions.
+    self_employed_pension_elective_deferrals: 2_500
+    savers_credit_qualified_contributions: 25_500
+
+- name: Self-employed plan contributions count up to the catch-up room at age 55.
+  period: 2025
+  input:
+    age: 55
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 10_000
+  output:
+    # 23,500 + 7,500 of catch-up room.
+    savers_credit_qualified_contributions: 31_000
+
+- name: Self-employed employer contributions do not offset distributions.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 5_000
+    retirement_distributions: 25_000
+  output:
+    # 23,500 + 0 - 25,000, floored at 0.
+    savers_credit_qualified_contributions: 0

policyengine_us/tests/policy/baseline/household/expense/retirement/self_employed_pension_elective_deferrals.yaml

@@ -0,0 +1,113 @@
+# The part of the person's own self-employed plan contributions that can be
+# elective deferrals (26 U.S.C. 402(g)(3)): contributions count as deferrals
+# first, up to the section 402(g) limit plus the catch-up amount less the
+# person's deferrals to other employers' 401(k) and 403(b) plans. Published
+# limits: $20,500 + $6,500 (2022), $23,500 + $7,500 or $11,250 at ages 60 to
+# 63 (2025), $24,500 + $8,000 (2026). Each case's contributions are within the
+# self-employed plan contribution limit, so they equal the desired amount.
+
+- name: Case 1, no other deferrals, so all contributions can be deferrals.
+  period: 2025
+  input:
+    age: 40
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 5_000
+  output:
+    self_employed_pension_contributions: 5_000
+    self_employed_pension_elective_deferrals: 5_000
+
+- name: Case 2, deferrals to an employer's plan fill the limit, so none can be deferrals.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 5_000
+  output:
+    self_employed_pension_contributions: 5_000
+    # 23,500 - 23,500 = 0 of room.
+    self_employed_pension_elective_deferrals: 0
+
+- name: Case 3, partial room after deferrals to an employer's plan.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 22_000
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 3_000
+  output:
+    # 23,500 - 22,000 = 1,500 of room.
+    self_employed_pension_elective_deferrals: 1_500
+
+- name: Case 4, catch-up room at age 55.
+  period: 2025
+  input:
+    age: 55
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 10_000
+  output:
+    # 23,500 + 7,500 - 23,500 = 7,500 of room.
+    self_employed_pension_elective_deferrals: 7_500
+
+- name: Case 5, the higher catch-up at age 61.
+  period: 2025
+  input:
+    age: 61
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 23_500
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 15_000
+  output:
+    # 23,500 + 11,250 - 23,500 = 11,250 of room.
+    self_employed_pension_elective_deferrals: 11_250
+
+- name: Case 6, Roth 403(b) and traditional 401(k) deferrals share the room.
+  period: 2026
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 10_000
+    roth_403b_contributions_desired: 10_000
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 8_000
+  output:
+    # 24,500 - 20,000 = 4,500 of room.
+    self_employed_pension_elective_deferrals: 4_500
+
+- name: Case 7, desired employer-plan deferrals above the limit still leave no room.
+  period: 2025
+  input:
+    age: 40
+    employment_income: 60_000
+    traditional_401k_contributions_desired: 30_000
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 5_000
+  output:
+    # Deferrals are scaled to 23,500, leaving no room.
+    traditional_401k_contributions: 23_500
+    self_employed_pension_elective_deferrals: 0
+
+- name: Case 8, 2022 room.
+  period: 2022
+  input:
+    age: 40
+    employment_income: 60_000
+    roth_401k_contributions_desired: 20_000
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 2_000
+  output:
+    # 20,500 - 20,000 = 500 of room.
+    self_employed_pension_elective_deferrals: 500
+
+- name: Case 9, no self-employed plan contributions.
+  period: 2025
+  input:
+    age: 40
+    self_employment_income: 100_000
+    self_employed_pension_contributions_desired: 0
+  output:
+    self_employed_pension_elective_deferrals: 0