Kathy is 48 years of age and self-employed. During 2018 she reported $510,000 of revenues and $102,000 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to an individual 401(k)?
Answer -
As per U.S. Internal Revenue Service, Contributions to individual 401(k) is limited to the lesser of -
In the given case, Kathy's contribution to Individual 401(k) = $56000.
Computed as follows:
| A. |
Net earnings from self employment = (92.35% of Net income) = 92.35% * ($510000 - $102000) = $376788 20% of Net earnings from self employment + $19000 - = (20% * $376788) + $19000 = $94358 |
$94358 |
| B. | Maximum contribution limit | $56000 |
|
Kathy's contribution to Individual 401(k) = Lesser of (A) or (B) |
$56000 | |
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