Question

Anthony, a self-employed plumber, makes a maximum contribution to a SEP for his employee, Debra. Debra's compensation is $40,000 for the year. How much is he allowed to contribute to the plan for Debra?

Answer 1

$10,000

Step-by-step explanation:

The maximum contribution you can made to SEP shall not exceed the lower of the following two limits for 2020:

1. 25% of total compensation paid to employee.

2. $57,000

By applying the above rule to the given scenario in question, the maximum contribution allowed by the Anthony to be made to SEP for Debra shall not exceed:

25% of total compensation=25%*40,000=$10,000