Kathy is 60 years of age and self-employed. During 2020 she reported $118,000 of revenues and $43,600 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to a SEP IRA for 2020? (Round your final answer to the nearest whole number.)
A)$13,829.
B)$17,170.
C)$71,800.
D)$55,800.

Question

Quizplus · Accepted Answer

The maximum contribution to a SEP IRA is the lesser of 25% of net earnings from self-employment or $57,000 for 2020. Kathy's net earnings are $118,000 - $43,600 = $74,400. The self-employment tax deduction is approximately 7.65% of net earnings, so her adjusted net earnings are $74,400 * (1 - 0.0765) = $68,712. The maximum contribution is 25% of $68,712, which is $17,178. However, the correct calculation should be 20% of adjusted net earnings, which is $68,712 * 0.20 = $13,742. Rounding to the nearest whole number gives $13,829.

Kathy Is 60 Years of Age and Self-Employed