During 2019, Jerry is a self-employed therapist, and his net earned income is $121,000 from his practice. Jerry's SEP Plan, a defined contribution plan, states that he will contribute the maximum amount allowable. Calculate Jerry's contribution.

Jerry's SEP Plan

Maximum Allowable Contribution

= $30,250.

Explanation:

a) Data and Calculation:

Net earned income = $121,000

SEP IRA Plan = 25% of $121,000 = $30,250

The value of the above calculation is less than the $57,000 maximum.

b) Jerry, as a self-employed therapist, can make contributions to his SEP-IRA each year.  These contributions cannot exceed the lesser of 25% of compensation or $57,000 for 2020 ($56,000 for 2019 and subject to annual cost-of-living adjustments for later years), according to the information published by the Internal Revenue Service.

c) Jerry's simplified employee pension (SEP or SEP IRA) is a retirement plan that Jerry can establish as a self-employed therapist or individual.