Question

Zack, a sole proprietor, has earned income of $115,310 in 2020 (after the deduction for one-half of self-employment tax). What is the maximum contribution Zack may make to a defined contribution Keogh plan?

Answer 1

The maximum contribution Zack may make to a defined contribution Keogh plan is $28,827.50.

Step-by-step explanation:

In order to determine the maximum contribution Zack may make to a defined contribution Keogh plan, we need to consider the contribution limits set by the IRS. For 2020, the maximum contribution limit for a defined contribution Keogh plan is the lesser of 25% of the earned income or $57,000.

In this case, Zack's earned income is $115,310. Therefore, the maximum contribution he may make to a defined contribution Keogh plan is the lesser of:

25% of $115,310 = $28,827.50

$57,000

So, the maximum contribution Zack may make to a defined contribution Keogh plan is $28,827.50.