What is the total contribution to Elizabeth's SIMPLE IRA for 2023 if she contributes 5% of her $50,000 compensation?

To determine the total contribution to Elizabeth's SIMPLE IRA for 2023, you need to calculate 5% of her total compensation, which is $50,000.

Start by converting the percentage to a decimal for multiplication: 5% equals 0.05. Then, multiply this decimal by her compensation:

0.05 * $50,000 = $2,500.

This represents Elizabeth's personal contribution to her SIMPLE IRA for the year. However, it's essential to remember that an employer can also match contributions to a SIMPLE IRA. The allowable employer contribution can be an additional 3% of the employee's compensation, which in this case would be:

3% of $50,000 = 0.03 * $50,000 = $1,500.

Next, add the employee's contribution ($2,500) to the potential employer match ($1,500) to find the total contribution for the year:

$2,500 (employee) + $1,500 (employer) = $4,000.

Therefore, the total contribution to Elizabeth's SIMPLE IRA, including her and her employer's contributions, amounts to $4,000. This calculation makes it clear why this is the correct answer for the total