Gordon is a 52-year-old self-employed contractor (no employees). During 2019, his Schedule C net income was...

Gordon is a 52-year-old self-employed contractor (no employees). During 2019, his Schedule C net income was $60,000. What is the maximum amount that Gordon can contribute to (1) a SEP IRA and (2) an individual 401(k)? (Round your answers to the nearest whole number.)

Solutions

Expert Solution

Amount contributable to SEP IRA = $16,357

Amount contributable to Individual 401(k) = $39,357.

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Working:

Maximum amount that can be contributed to SEP IRA:

It will be the lower of the following -

1. $52,000 or

2. $16,357 [$88,000 - (88,000 × .9235 × .153 × .50)] × 20%.

Thus, $16,357

Maximum amount that can be contributed to Individual 401(k):

It will be the lower of -

1. $52,000 or

2. $33,857 [[($88,000 - (88,000 × .9235 × .153 × .5)) × 20%] + $17,500]

Now, since Gordon is aged 52 years i.e. more than 50 years he is eligible deduct $5,500 more.

Thus, the maximum contribution is $39,357 i.e. 33,857 + 5,500.

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ekkarill92 answered 1 year ago

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