Scenario 5 (Diego) 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.

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. ALL Information given for question:

QUESTION:

1. WHAT AMOUNT DOES DIEGO REPORT FOR HIS ADJUSTED GROSS INCOME?

A) 40,000 B) 42000 C) 54,500 D) 56,500

QUESTION 2:

WHAT AMOUNT WILL DIEGO REPORT FOR ADDITIONAL TAX ON IRA'S OTHER QUALIFIED RETIREMENT PLANS, AND OTHER TAX-FAVORED ACCOUNTS?

A) $0 B) $825 C)$1450 D) $1650