Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan). She has the following income items for the year:

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%?

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:
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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%?

Quizplus · Accepted Answer

The maximum amount Susan can contribute to her Keogh plan as a percentage of her earned income is 20%. Therefore, the maximum amount she can contribute is $46,000 ($230,000 x 20%).

However, the deductible amount is reduced by the amount of self-employment tax paid. In this case, the self-employment tax is 15.3% of Susan's net earnings from self-employment, which is $4,630 ($30,280 x 15.3%).

Therefore, the maximum amount Susan can deduct as a contribution to her retirement plan is $46,000 - $4,630 = $41,370.

However, since the question only asks for the maximum amount she can contribute, the correct answer is D) $46,000.

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