Question
In: Accounting
Rita is a self-employed taxpayer who turns 39 years old at the end of the year...
Rita is a self-employed taxpayer who turns 39 years old at the
end of the year (2018). In 2018, her net Schedule C income was
$268,000. This was her only source of income. This year, Rita is
considering setting up a retirement plan.
What is the maximum amount Rita may contribute to the self-employed
plan in each of the following situations?
a. She sets up a SEP IRA.
b.. She sets up an individual 401(k).
Solutions
Expert Solution
Ans- Calculation of the maximum amount Rita may contribute in self employed plan in each of the following situation:
a- She sets up a SEP IRA:-
According to SEP IRA total contribution can not exceed limited lesser amount of $55,000 or 25% of met income of self employment.
Calculation of the Rita SEP IRA net income:-
According to Net schedule C income only 92.35%
Rita net earnings= $268,000*92.35%
=$247,498
Contribution = $247,498*25%
=$61.874.50
Therefore, maximum amount Rita contribute lesser amount is $55,000
b- She sets up an individual 401 (k):-
According to individual 401 (k) total contribution can not exceed the limited lesser amount of $55,000 or 25% of net income of self employment plus $18,500
Calculation of the Rita individual 401 (k) net contribution
According to Net schedule C income only 92.35%
Rita net earnings= $268,000*92.35%
=$247,498
Contribution = ($247,498*25%)+$18,500
=$61,874.50+$18,500
=$80,374.50
Therefore, maximum amount Rita contribute lesser amount is $55,000.
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ekkarill92 answered 1 year agoRelated Solutions
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