Question

maximizing retirement contributions for high earners
high - earner contributions
zarah is self - employed with an annual income of $150,000. they want to maximize their retirement contributions and benefit from employer - based contributions.
retirement plan contribution limit contribution type
sep ira 25% of income up to $66,000 employer - funded
simple ira $15,500+ employee match employer and employee contributions
traditional ira $6,500 employee - funded
roth ira $6,500 employee - funded
which retirement plan would allow zarah to contribute the most, given their income?
traditional ira
sep ira
roth ira
simple ira

Explanation:

Step1: Calculate SEP - IRA contribution

For SEP - IRA, the contribution limit is 25% of income up to $66,000. Zarah's income is $150,000. 25% of $150,000 is $150000\times0.25 = 37500$, but the cap is $66,000, so the contribution is $37500$.

Step2: Calculate SIMPLE - IRA contribution

For SIMPLE - IRA, the base employee contribution is $15,500. Assuming a full employer - match (not given otherwise), the total contribution would be $15500\times2=31000$ (employee + employer).

Step3: Calculate Traditional IRA and Roth IRA contributions

For Traditional IRA and Roth IRA, the contribution limit is $6,500 each (employee - funded).

Answer:

SEP IRA