Cary is an employee with the Bayview Corporation. Bayview maintains a defined contribution plan for all its employees. Determine the maximum deductible contribution Bayview can make to the pension plan in each of the following situations:
a. Cary's salary is $90,000.
b. Cary's salary is $220,000.
a. In a defined contribution plan, the maximum amount that can be contributed is limited to the lesser of $54,000 or 25% of the employee's taxable compensation. Bayview can contribute $22,500.
b. There is a ceiling on the amount of an employee's maximum contribution. In 2017, the maximum amount of the contribution is $54,000 . Because Cary's salary exceeds the ceiling, Bayview can contribute $54,000 on her behalf to the pension plan.
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