Question
In: Accounting
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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