Drew is a partner at Peyton LLP. Peyton maintains a money purchase Keogh plan for its partners and employees. Drew owns a 30% partnership interest in Peyton. Determine the maximum deductible contribution Drew can make to the plan in each of the following situations:
a.Drew 's net self-employment income is $85,000.b.Drew's net self-employment income is $290,000.
What will be an ideal response?
| a. | His contribution is based on his net self-employment income. Drew can contribute $17,000 ($85,000 × 20%) to his Keogh account. |
| b. | Drew is subject to the same limitations as an employee; he cannot contribute more than $56,000 to his Keogh account. Although Drew's calculated contribution is $58,000 ($290,000×20%), he is limited to $56,000. |
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