Hope is a self-employed taxpayer who turns 54 years old at the end of the year (
ID: 2447562 • Letter: H
Question
Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2015). In 2015, her net Schedule C income was $120,000. 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? Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2015). In 2015, her net Schedule C income was $120,000. 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?
maximum contribution?
b. She sets up an individual 401(k).Explanation / Answer
Answer: $44,164.
Contributions to individual 401(k)s are limited to the lesser of $53,000 or 20% of net earnings from self employment plus $16,500. However, if the taxpayer is 50 years old or greater as of the end of the year, the taxpayer may contribute an additional $5,500. Therefore, the maximum amount Hope may contribute is $44,164 ($22,164 + $22,000). The contribution may not exceed net earnings from self-employment.
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