Kathy is 48 years of age and self-employed. During the year she reported $100,000 of revenues and $40,000 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 an individual 401(k)?
A) $11,152
B) $16,652
C) $28,652
D) $52,000

Question

Quizplus · Accepted Answer

Kathy's net self-employment income is $60,000 ($100,000 - $40,000). She can contribute up to 20% of her net earnings from self-employment, which is $12,000. Additionally, she can make an elective deferral contribution of up to $22,500 (for 2023), totaling $34,500. However, the total contribution is limited to $66,000 or 100% of compensation, whichever is less. Therefore, the maximum she can contribute is $28,652, considering the self-employment tax deduction.

Kathy Is 48 Years of Age and Self-Employed