Question

Required information [The following information applies to the questions displayed below.] Hope is a self-employed taxpayer who turns 54 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, Hope is considering setting up a retirement plan. What is the maximum amount Hope 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.) a. She sets up a SEP IRA. Maximum contribution

Answer 1

A) net self employment income = 92.35 % of schedule C income

= $130000*92.35% = $120055

In 2019 deduction is limited to lower of

1) $56000

2) 25% of net self employment income ($120055*25%) $30013.75

So contribution will be $30013.75

B) contribution under 401(k)

For employee part she can deduct upto 19000 and 6000 additional because she is more than 50 years old.

For employer part she can deduct 25% of net self employed income

So contribution = $19000 + $6000 + $ 30013.75

= $55013.75

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