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A self-employed client has an annual income of $200,000 and is in a high tax bracket. He is not covered by a retirement plan and would like to make the maximum contribution to one to reduce his taxable income. He believes that he will be in a lower tax bracket once he retires. The BEST recommendation is to contribute to a:

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eooyibo123

Answer:

Simplified Employee Pension IRA (SEP)

Explanation:

Simplified employee pension IRA is most suitable for this client because it is easy to set up and operate. Most importantly it requires a maximum of 20% of the contributor's income. The amount required is capped at $54,000.

In this case 20% of the employee's income is 0.20 * 200,000 = $40,000

So this is a right fit.

Roth IRA will not work because maximum contribution is $5,500

Traditional IRA will also not work because it requires a maximum contribution of $5,500 or when it is a 401(k) plan a maximum of $18,000. It is also expensive to set up and operate as it is designed for big companies.

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