Accent, Inc. sponsors a 25% money purchase pension plan for its eligible employees. Carlos earns $200,000, Kevin earns $60,000, Kelly earns $300,000, and Rick, who is ineligible, earns $27,000. What is Accent’s required deuctible contribution for the year? All employees are under age 50.
a. $116,000
b. $126,250
c. $127,500
d. $134,250
Answer :a. $116,000
working notes for the above answer
we have been provided with the information as under
Accent, Inc. sponsors a 25% money purchase pension plan
Carlos earns $200,000,
Kevin earns $ 60,000,
Kelly earns $300,000, and
Rick, who is ineligible, earns $27,000
Calculation for Accent’s required deductible contribution for the year is as under
Accent’s deductible contribution for the year would equal the sum of the maximum contributions for each participant. In this problem, the contributions on behalf of Carlos and Kelly would be $50,000 and $52,000 respectively (2014).
The contribution on behalf of Kevin would be $15,000 ($60,000 x 25%). Therefore, Accent’s deductible contribution would equal $117,000 ($50,000 + $52,000 + $15,000).
| Employee | Employee Compensation | 25% | Maximum Contribution |
| Carlos | $ 200,000 | 50,000 | 50,000 |
| Kevin | $ 60,000 | 15,000 | 15,0000 |
| Kelly | $ 300,000 | 75,000 | 51,000 |
| Rick | $ 27,000 | 0 | |
| tOTAL | $ 537000 | $ 116,000 |
Rick is not covered by the plan.
