Question

Kathy is 60 years of age and self-employed. During 2019, she reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to an individual 401(k) for 2019?

A) $11,152.
B) $17,152.
C) $12,000
D) $55,000.

Answer 1

$35,152

Step-by-step explanation:

Kathy is allowed to contribute the lesser of two amounts:

• $53,000 or
• {[($60,000 - (60,000 × .9235 × .153 × .5)] × 20%} + $18,000] = [($60,000 - $4,155.75) x 20%] + $18,000 = $29,152

Kathy is allowed to contribute $29,152 plus an additional $6,000 as a catch-up adjustment since she is over 50 years of age.

Her total contribution = $29,152 + $6,000 = $35,152