Question

Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2019). In 2019, his net Schedule C income was $304,000. 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? (Round your intermediate calculations to the nearest whole dollar amount.)
a. He sets up a SEP IRA.
b. He sets up an individual 401(k).

Answer 1

Answer:

Consider the following calculations and explanation

Explanation:

.a. Reggie sets up a SEP IRA:

He can contribute maximum amount of 25% of his net income, upper limit being $55,000 in 2018 and $54,000 in 2017.

Since his net income is $300,000: 25% of his net income (300000*0.25)=$75,000

Upper limit in 2017=$54,000

In 2017 he can contribute maximum $54,000

In 2018 he can contribute maximum$55,000

.b. . Reggie sets up an individual 401(K):

Annual salary deferral of $18,500 im 2018 and $18,000 in 2017. Since he is above 50 , there will be additional amount of $ 6,000 for him. So he can have annual salary deferral of $24.500 in 2018 and $24,000 in 2017

Contribute additional maximum $55,000 in 2018 and $54,000 in 2017