Diego (32) is filing as a single taxpayer. He changed jobs during the year, and when he
Question:
Diego (32) is filing as a single taxpayer. He changed jobs during the year, and when he left his first job, he decided to take a distribution of funds from his 401(k). He used the funds to make a down payment on a new car. The taxable amount of this distribution, reported in box 2a of Form 1099-R, was $14,500. There was a code 1 in box 7 of the Form 1099-R.
Diego was also the beneficiary of one of his great-grandmother's traditional IRAs. She passed away during the year, and Diego took a $2,000 distribution from the IRA. He used the money to pay down his credit card debt. As far as he knows, all of his great-grandmother's contributions to the account were deductible. This distribution was reported to him on a Form 1099-R with a code 4 in box 7.
Diego's only other income during the year was $40,000 in wages. He will claim the standard deduction.
PLEASE! Complete Schedule 2 (Form 1040), Additional Taxes, for Diego. You may also need to complete Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Then, enter the correct amounts on page 1 of Diego's Form 1040. It is not necessary to complete the entire Form 1040. You will need to refer to these forms to answer questions about this scenario in Part I of the Final Test.
What amount does Diego report for his adjusted gross income?
What amount will Diego report for additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts?