Question

Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2018). In 2018, his net Schedule C income was $336,000. This was his only source of income. This year, Reggie is considering setting up a retirement plan. What is the maximum amount he may contribute to the self-employed plan in each of the following situations? a. He sets up a SEP IRA. b. He sets up an individual 401(k).

Answer 1

	Particulars	SEP IRA	401(k)
a	Dollar limit	55,000	55,000
	Percent of net income:
b	Percentage	20%	20%
c	Schedule C net income	3,36,000	3,36,000
	Less:
d	Deductible SE taxes	11,176.09	11,176.09
e= c-d	Net income	3,24,823.91	3,24,823.91
f= b*e	Limit on net income	64,964.78	64,964.78
	Dollar allowance		17,000
g= minimum of a,f	Maximum contribution	55,000.00	55,000.00
h	Catch up		6,000
i= g+h	Total contribution	55,000.00	61,000.00