Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan).She has the following income items for the year:
Earned income from self-employment
$50,000
Dividend income
8,000
Interest income
2,000
Net short-term capital gain
12,000
Adjusted gross income
$72,000

What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2016,assuming the self-employment tax rate is 15.3%?
A)$9,235.
B)$12,000.
C)$46,000.
D)$46,468.
E)None of the above.

Question

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan).She has the following income items for the year:
Earned income from self-employment
$50,000
Dividend income
8,000
Interest income
2,000
Net short-term capital gain
12,000
Adjusted gross income
$72,000
​
What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2016,assuming the self-employment tax rate is 15.3%?
A)$9,235.
B)$12,000.
C)$46,000.
D)$46,468.
E)None of the above.

Quizplus · Accepted Answer

The maximum amount Susan can deduct as a contribution to her retirement plan in 2016 is $46,468. This is because the maximum contribution limit for a Keogh plan is 100% of earned income, up to a maximum of $54,000. Susan's earned income is $50,000, so she can contribute up to $50,000 to her Keogh plan. However, she must also take into account the self-employment tax rate of 15.3%. This means that she must reduce her contribution by 15.3%, or $7,632. This leaves her with a maximum contribution of $46,468.

Susan Is a Self-Employed Accountant with a Qualified Defined Contribution