Rita is a self-employed taxpayer who turns 39 years old at the end of the year. In the current year, her net Schedule C income was $276,000. This was her only source of income. This year, Rita is considering setting up a retirement plan. What is the maximum amount Rita may contribute to the self-employed plan in each of the following situations? Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. a. She sets up a SEP IRA. (BUT IT'S YEAR 2024!!)
In 2024, if Rita sets up a Simplified Employee Pension (SEP) IRA, the contribution limits are based on her net earnings from self-employment. The maximum contribution she can make to a SEP IRA is the lesser of 25% of her net earnings from self-employment or $66,000 (the limit for 2023, which may be adjusted for inflation in 2024). To calculate her maximum contribution, follow these steps: 1. **Calculate Net Earnings from Self-Employment:** - Start with her net Schedule C income: $276,000. - Subtract the deductible portion of self-employment tax. The self-employment tax rate is 15.3%, and half of this is deductible. - Self-employment tax = $276,000 × 15.3% = $42,228. - Deductible portion = $42,228 / 2 = $21,114. 2. **Calculate Adjusted Net Earnings:** - Adjusted net earnings = $276,000 - $21,114 = $254,886. 3. **Calculate Maximum SEP IRA Contribution:** - 25% of adjusted net earnings = $254,886 × 25% = $63,722. Since $63,722 is less than the $66,000 limit, Rita can contribute $63,722 to her SEP IRA for 2024. Please note that the IRS may adjust the
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