Reggie is a selfemployed taxpayer who turns 59 years old at

Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2017). In 2017, his net Schedule C income was $320,000. This was his only source of income. This year, Reggie is considering setting up a retirement plan.

What is the maximum amount he may contribute to the self-employed plan in each of the following situations?

a. He sets up a SEP IRA.

Maximum amount contributed

Solution

a)

Reggie is self -employed, his maximum contribution is 25% of compensation or must not exceed 54000, that is minimum of 54000 or 25% of the compensation is taken, hence it is as follows

25% of 320000 = 80000

Maximum amount allowed as contribution = 54000

From the above 54000 is the minimum, hence SEP IRA maximum contribution is $54,000