Question

Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2018, 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 $442,000,

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

a-2. What can Matthew contribute to his 401(k) account in 2018?

Assuming Matthew’s annual salary is $303,000,

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 2018?

Assuming Matthew’s annual salary is $70,500,

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

c-2. What can Matthew contribute to his 401(k) account in 2018?

. Assume the same facts as part c, except that Matthew is 54 years old at the end of 2018. What amount can Matthew contribute to his 401(k) account in 2018?

Answer 1

Answer a 1 ) In 2018, subject to cost-of-living adjustments, the overall contribution limits are 25% of an employee’s compensation or $55,000 whichever is less.

Sv contributes 15% of Mathew salary limited to amount defined $55000

Matthews Salary is $442000

15% of 442000=$66300
or $55000 whichever is less. hence SV contribution to Mathew money purchase plan is $55000.

a 2) Mathew can contribute $18500 in 401(k) plan in 2018.

Answer B 1)

Sv contributes 15% of Mathew salary limited to amount defined $55000

Matthews Salary is $ 303000

15% of 303000=$45450
or $55000 whichever is less. hence SV contribution to Mathew money purchase plan is $45450

b 2) Mathew can contribute $18500 in 401(k) plan in 2018.

Answer c1) Sv contributes 15% of Mathew salary limited to amount defined $55000

Matthews Salary is $ 70500

15% of 70500=$10575

or $55000 whichever is less. hence SV contribution to Mathew money purchase plan is $10575

C 2) Mathew can contribute $18500 in 401(k) plan in 2018.

In case Matthew is 54 year old then additional he can contribute $6000 in addition to his maximum defined contribution of $18500 in 401(k) as $6000 contribution is allowed for employees who are 50 years or older.