Question

Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He uses a defined contribution Keogh plan. What is the maximum amount Harvey can contribute to his retirement plan in 202

Answer 1

Answer:

$24,000

Explanation:

It is mentioned in the question that, Harley who is a self employed accountant has an income from his business of 1,20,000 dollar, which is after the one half deduction of his self employment tax.

He uses a Keogh contribution plan.

Now, due to reducing of the earned income that is base by a one-half of his self-employment tax and by the contribution itself, the permissible 25% contribution is reduced to an effective of 20% contribution rate.

So, 20% of $120,000 or $53,000 whichever is LESS

20% of $120,000 = $24,000

Hence, the maximum amount Harvey contributes to his retirement plan is $24,000.