Question

Michael earned $10,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA, but the amount is dependent on whether it reduces his taxable income. If Michael is going to claim the standard deduction, how much should he contribute to a traditional IRA?

Answer 1

Answer:

Particulars	Amount ($)	Source
Michael Earnings	10000	Given
Age	Less Than 50 Years	As he is in senior year in college
Maximum Contribution Allowed	6000	IRS
Standard Deduction that can be claimed	6000	IRS

Explanation:

According to IRS, in 2020, the maximum amount allowed to a traditional individual retirement account and Roth IRAs cannot exceed more than $6000 ($7000 in the case of individuals of age 50 or older).

Therefore, Michael should contribute the maximum amount of $6000 to his traditional IRA. Michael is eligible to take the standard deduction as his contribution can be claimed as a deduction for AGI (Adjusted Gross Income).