Question

Chi is single and an employee of Federal Company. Chi's adjusted gross income for the current year is $63,000. Chi would like to make the maximum contribution to his individual retirement account this year. Which of the following statements about Chi's contribution and deduction amounts is (are) true?

I. He is not allowed to make an IRA contribution because his adjusted gross income is greater than $60,000.
II. If Federal Company does not have a qualified pension plan; Chi can contribute and deduct a maximum of $5,500 to his IRA account.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

Chi is allowed to make an IRA contribution, but the maximum contribution amount will be phased out based on his income level. If Federal Company does not have a qualified pension plan, Chi can contribute and deduct a maximum of $6,000 (or $7,000 if he is age 50 or older).

Step-by-step explanation:

Chi is allowed to make an IRA contribution, even though his adjusted gross income is greater than $60,000. However, the maximum contribution amount will be phased out based on his income level. For a single individual, the phase-out range for 2021 is between $66,000 to $76,000. If Chi's income falls within this range, he can still make a partial contribution. If Federal Company does not have a qualified pension plan, Chi can contribute and deduct a maximum of $6,000 to his IRA account for the year 2021 (the limit is increased to $7,000 if he is age 50 or older).