Rita is a self-employed taxpayer who turns 39 years old at the end of the year...

Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2018). In 2018, her net Schedule C income was $288,000. This was her only source of income. This year, Rita is considering setting up a retirement plan.

What is the maximum amount Rita may contribute to the self-employed plan in each of the following situations?

a. She sets up a SEP IRA.

Maximum contribution

b. She sets up an individual 401(k).

Maximum contribution

Expert Solution

Computation of Maximum Amount Rita Can Contribute to the Self Employed Plan In the Following Situations
a) She Sets Up a SEP IRA
According to SEPIRA , Total Contribution cannot exceed limited amount of $55,000 or 25% of Net income of Self Employment

So For Calculation of
RITA SEPIRA net Income
According to Net Schedule C Income only 92.35%
Therefore Net Earnings=$288,000*92.35%=$265,968.

Contribution=25%*265,968=$66,492.

Maximum Contribution $55,000

Note: 55,000 For 2018

B) If She Sets up an Individual 401(k)
According to Individual 401(k) total Contribution cannot exceed limited lesser amount of $55,000 or 25% of net income of self Employment Plus $18,500
So calculation of RITA individual 401(k) Net Contribution
According to net Schedule C Income Only 92.35%

The net earnings=288,000*92.35%=$265,968
So Contribution=25% of 265,968 +18,500=$66492+$18500=$84,992

Note:18,500 for 2018
$18,000 for 2017,2016,2015.

ekkarill92 answered 2 years ago

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Rita is a self-employed taxpayer who turns 39 years old at the end of the year...

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