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.

1) What amount does Carlos report for additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts on Schedule 4 (Form 1040)?

a) $0

B) $405

c) $750

d) $1,500

Answer 1

Answer -

Step - (1) - Facts of the case given -

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).

The taxable amount of this distribution, reported in box 2a of Form 1099-R, was $15000. Carlos's only other income during the year was $40000 in wages.

.

Step - (2) - Computation of Additional Tax -

As per U.S. Internal Revenue Service, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59½ are called "premature" distributions. Individuals must pay an additional 10% early withdrawal tax.

In the given case,

Carlos report for additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts on Schedule 4 (Form 1040) = ($15000 * 10%) = $1500.

Therefore, Option - (D) is Correct.