Question

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.) Problem 13-77 Part b b. She sets up an individual 401(k).

Answer 1

Elvira is a Self employed Taxpayer and having 42 Years old at the end of the year 2019.

She sets up an individual 401(k)

Taking the plan contribution rate	10%
Dividing the plan contribution rate by 100% + plan contribution rate	10%/110%
To get the reduced plan contribution rate	9.09%
Elvira can now compute his own contribution/deduction amount as follows:
Schedule C net profit	$130,000
½ SE tax deduction ($19,890 x ½)	$ 9,945
Net profit reduced by ½ SE tax	$ 1,20,055
Elvira’s reduced plan contribution rate	9.09%
Elvira’s allowed contribution and deduction	$ 10,913

NOTE:

The maximum contribution for retirement plan under Self employed for 2019 is $ 56,000