Question

Matthew (48 at year-end) develops cutting-edge technology for SV Incorporated, located in Silicon Valley. In 2022, Matthew participates in SV's money purchase pension plan (a defined contribution plan) and in his company's 401(k) plan. Under the money purchase pension plan, SV contributes 15 percent of an employee's salary to a retirement account for the employee up to the amount limited by the tax law. Because it provides the money purchase pension plan, SV does not contribute to the employee's 401(k) plan. Matthew would like to maximize his contribution to his 401(k) account after SV's contribution to the money purchase plan. Note: Leave no answers blank. Enter zero if applicable. Problem 13-58 Part a (Algo)

Assuming Matthew's annual salary is $399,000,

Required: a-1. What amount will SV contribute to Matthew's money purchase plan?

Answer 1

SV Incorporated would contribute 15% of Matthew's $399,000 annual salary to the money purchase pension plan, totaling $59,850 before considering any legal contribution limits set by tax law.

Step-by-step explanation:

When considering retirement plans, many companies have shifted from traditional pensions to defined contribution plans, such as 401(k)s and 403(b)s. In the case of Matthew who works for SV Incorporated and earns an annual salary of $399,000, the calculation for his money purchase pension plan contribution would be straightforward. SV contributes 15 percent of an employee's salary to their retirement account under this plan, up to the legal limits set by tax law.

Given Matthew's annual salary, SV's contribution can be calculated as:

SV's contribution = Matthew's annual salary × Contribution percentage

SV's contribution = $399,000 × 15%

The actual contribution will depend on the tax law limits, but without considering those limits, SV's contribution would be:

SV's contribution = $399,000 × 0.15

SV's contribution = $59,850

This is the maximum amount SV would contribute to Matthew's money purchase plan, assuming that it does not exceed the legal limit for contributions in the tax year in question.