Paula is a self-employed doctor and is considering whether to establish a defined contribution H.R. 10 plan. Paula’s only employee is a full-time nurse who has been employed by Paula for seven years. Paula’s net earnings from self-employment (before the H.R. 10 plan contribution but after the deduction for one-half of self- employment taxes paid) is expected to be $100,000 during the current year and in future years.
a. If the H.R. 10 plan is established, what is the maximum amount Paula can contribute for the nurse’s benefit?
b. What is the maximum amount Paula can contribute for herself? Is the amount reported as a for AGI or from AGI deduction?
c. Is Paula’s nurse required to be included in the plan?
d. What are the tax consequences if Paula makes a premature withdrawal from the plan before reaching age 59 ½?