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Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2017,...

Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2017, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and in his company’s 401(k) plan. Under the money purchase pension plan, SV contributes 15 percent of an employee’s salary to a retirement account for the employee up to the amount limited by the tax code. Because it provides the money purchase pension plan, SV does not contribute to the employee’s 401(k) plan. Matthew would like to maximize his contribution to his 401(k) account after SV’s contribution to the money purchase plan. (Leave no answer blank. Enter zero if applicable.)

Assuming Matthew’s annual salary is $455,000.

a-1. What amount will SV contribute to Matthew’s money purchase plan?

Assuming Matthew’s annual salary is $284,000.

b-1. What amount will SV contribute to Matthew’s money purchase plan?

b-2. What can Matthew contribute to his 401(k) account in 2017?

Assuming Matthew’s annual salary is $76,000.

c-1. What amount will SV contribute to Matthew’s money purchase plan?

c-2. What amount can Matthew contribute to his 401(k) account in 2017?

d. Assume the same facts as part c, except that Matthew is 54 years old at the end of 2017. What amount can Matthew contribute to his 401(k) account in 2017?

Solutions

Expert Solution

For 2017, combined employer and employee contributions may not exceed the lesser of 100% of compensation or $54,000.

Part a-1 total contribution will be lesser of 54000 or 455000 and therefore it will be 54000. And SV contribution can be (15% of 455000)= 68500 but as total contribution is limited up to $54000, SV contribution in this case will be $54000 and Mathew's contribution= 0

Part b-1 total contribution will be lesser of 54000 or 284000 and therefore it will be 54000. And SV contribution will be (15% of 284000)= 42600

Part b-2 Mathew's can contribute up to $18000 and total contribution is limited up to $54000, So Mathew's contribution will be (54000-42600)= $11,400

Part c-1 total contribution will be lesser of 54000 or 76000 and therefore it will be 54000. And SV contribution will be (15% of 76000)= 11400

Part c-2 Mathew's can contribute up to $18000 and total contribution is limited up to $54000, So in this case Mathew's maximum contribution will be up to $18000

Part d For the 2017 tax year, 401(k) participants can choose to have up to $18,000 of their compensation placedinto their account, with an additional $6,000 catch-up contribution allowed for participants 50 and older. So Mathew's contribution will be (18000+6000) = 24000 and contribution of SV will remain the same as in part c $11400

ekkarill92 answered 2 years ago
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