Kathy is 60 years of age and self-employed.During the year she reported $400,000 of revenues and $100,000 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 this year to a simplified employee pension (SEP) IRA?
A)$51,000
B)$56,500
C)$57,786
D)$288,933

Question

Quizplus · Accepted Answer

The maximum amount Kathy can contribute to her SEP IRA is the lesser of 25% of her net self-employment income ($400,000 - $100,000 = $300,000) or $57,000 for 2020. Therefore, the maximum contribution she can make is $75,000 ($300,000 x 25%), but this is above the limit, so the answer is $57,000. However, if Kathy is over the age of 50, she can also make a catch-up contribution of up to $6,500, bringing the total contribution limit to $63,500 ($57,000 + $6,500).

Kathy Is 60 Years of Age and Self-Employed