Question

[The following information applies to the questions displayed below.] Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2019). In 2019, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is considering setting up a retirement plan. What is the maximum amount Elvira may contribute to the self-employed plan in each of the following situations? (Round your intermediate calculations and final answers to the nearest whole dollar amount.) b. She sets up an individual 401(k).

b. She sets up an individual 401(k).

Answer 1

a). Maximum amt $22,164

Contributions to SEP IRAs are limited to the lesser of $49,000 or 20% of net earnings from self- employment. Elvira's earning from self-employment equals $110,820 ($120,000 X .9235).

Her contribution is limited to $22,164 ($110,820 X 20%). Nope that the maximum contribution to a SEP IRA does not depend on age

b). $38,664

Contribution to individual 401(k)s are limited to the lesser of $49,000 or 20% of net earnings from self-employment plus $16,500. However, if the taxpayer is 50-year-old or greater as of the end of the year, the taxpayer may contribute an additional $5,500. Therefore, the maximum amount Hope may contribute is $38,664 ($22,164 + $16,500). The contribution may not exceed net earnings from self-employment