Question

Carlos (35) is single. 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 $15,000. There was a code 1 in box 7 of the Form 1099-R. Carlos's only other income during the year was $40,000 in wages.

Complete a Schedule 4 (Form 1040), Other Taxes, for Carlos. 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 the first 7 lines on page 2 of Carlos's Form 1040. It is not necessary to complete the entire form. You will need to refer to the completed portion of Form 1040 to answer questions about this scenario in Part I of the Final Test.

Answer 1

Maximum employee elective deferral $ 19000

Taxable Amount = $ 15000

Box 2a. This part of the distribution is generally taxable. If there is no entry in this box, the payer may not have all the facts needed to figure the taxable amount. In that case, the first box in box 2b should be checked. You may want to get one of the free publications from the IRS to help you figure the taxable amount. See Additional information on the back of Copy 2. For an IRA distribution, see IRAs and Roth IRAs on this page. For a direct rollover, other than from a qualified plan to a Roth IRA, zero should be shown, and you must enter zero (-0-) on the “Taxable amount” line of your tax return. If you roll over a distribution (other than a distribution from a designated Roth account) from a qualified plan (including a governmental section 457(b) plan) or section 403(b) plan to a Roth IRA, you must include on the “Taxable amount” line of your tax return the amount shown in this box plus the amount in box 6, if any. (Continued on the back of Copy C.)

Box 7. The following codes identify the distribution you received. For more information on these distributions, see the instructions for your tax return. Also, certain distributions may be subject to an additional 10% tax. See the Instructions for Form 5329. 1—Early distribution, no known exception (in most cases, under age 59½). 2—Early distribution, exception applies (under age 59½). 3—Disability. 4—Death. 5—Prohibited transaction. 6—Section 1035 exchange (a tax-free exchange of life insurance, annuity, qualified long-term care insurance, or endowment contracts). 7—Normal distribution. 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2019. 9—Cost of current life insurance protection. A—May be eligible for 10-year tax option (see Form 4972). B—Designated Roth account distribution. Note: If code B is in box 7 and an amount is reported in box 10, see the Instructions for Form 5329. C—Reportable death benefits under section 6050Y. D—Annuity payments from nonqualified annuities that may be subject to tax under section 1411. E—Distributions under Employee Plans Compliance Resolution System = 40,000

CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and phone no. PAYER’S TIN RECIPIENT’S TIN RECIPIENT’S name Street address (including apt. no.) City or town, state or province, country, and ZIP or foreign postal code 10 Amount allocable to IRR within 5 years $ 11 1st year of desig. Roth contrib. FATCA filing requirement Account number (see instructions) Date of payment 1 Gross distribution $ 2a Taxable amount $ 2b Taxable amount not determined Total distribution 3 Capital gain (included in box 2a) $ 4 Federal income tax withheld $ 5 Employee contributions/ Designated Roth contributions or insurance premiums $ 6 Net unrealized appreciation in employer’s securities $ 7 Distribution code(s) IRA/ SEP/ SIMPLE 8 Other $ % 9a Your percentage of total distribution % 9b Total employee contributions $ 12 State tax withheld $ $ 13 State/Payer’s state no. 14 State distribution $ $ 15 Local tax withheld $ $ 16 Name of locality 17 Local distribution $ $