Question

Thomas is a sole proprietor under 50 years of age who plans to contribute to his individual 401(k). For 2019 he can contribute the lesser of $(1) or (2)% of Schedule C net income minus the deduction for the employer's portion of the self-employment taxes paid plus an additional $(3) (considered the employee's contribution).

a) 19,000; 10
b) 26,000; 20
c) 56,000; 15
d) 25,000; 5

Answer 1

To calculate Thomas's contribution to his individual 401(k) for 2019, use the formula: lesser of $(1) or (2)% of Schedule C net income minus the deduction for the employer's portion of the self-employment taxes paid plus an additional $(3) (considered the employee's contribution). The answer is option a) $19,000.

Step-by-step explanation:

To calculate Thomas's contribution to his individual 401(k) for 2019, we need to follow the given formula: lesser of $(1) or (2)% of Schedule C net income minus the deduction for the employer's portion of the self-employment taxes paid plus an additional $(3) (considered the employee's contribution).

• $(1) represents the limit for contributions. In this case, it is $19,000 (option a).
• (2)% represents the percentage of the Schedule C net income that can be contributed. In this case, it is 10 (option b).
• $(3) represents the additional contribution made by the employee. In this case, it is $0.

Therefore, the answer is option a) $19,000.