Question

George Clausen (age 48) is employed by Kline Company and is paid a salary of $42,744. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: a. What is the maximum that he can contribute into this retirement fund? $ b. What would be the company's contribution? $ c. What would be his weekly take-home pay if he contributes the maximum allowed retirement contribution (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)? Click here to access the Wage-Bracket Method Tables. $ d. What would be his weekly take-home pay without the retirement contribution deduction? $

Answer 1

Part A)

As per the relevant provisions of IRS, the maximum amount of contribution that can be made to Simple Retirement Account (IRA form) for the year 2016 by an employee is $12,500.

Part B)

As per the relevant provisions of IRS, the maximum amount of contribution that can be made to Simple Retirement Account (IRA form) for the year 2016 by the company is 3% of the total compensation earned by the employee.

The total amount of company's contribution would, therefore, be $1,282.32 (42,744*3%)

Part C)

The amount of weekly take-home pay is calculated as follows:

Weekly Pay (42,744/52)	822
Less Weekly Retirement Contribution (12,500/52)	240.38
Weekly Wages	581.62
Less FICA Tax (822*6.2% + 822*1.45%)	62.88
Federal IncomeTax (Refer to Weekly Wage Table for Married Persons, Column for 2 Allowances)	26
State Income Tax (822*2.3%)	18.91
Weekly Take Home Pay	$471.83

Part D)

The amount of weekly take-home pay is calculated as follows:

Weekly Pay (42,744/52)	822
Less FICA Tax (822*6.2% + 822*1.45%)	62.88
Federal IncomeTax (Refer to Weekly Wage Table for Married Persons, Column for 2 Allowances)	58
State Income Tax (822*2.3%)	18.91
Weekly Take Home Pay	$682.21