Question

A taxpayer may qualify for one of several exceptions to the additional tax on early distributions. Which of the following would be an exception?

1) Distributions made due to the taxpayer's death
2) Distributions made for qualified higher education expenses
3) Distributions made for the purchase of a first home
4) Distributions made for the taxpayer's vacation expenses

Answer 1

Exceptions to the additional tax on early distributions from retirement accounts include distributions made because of the taxpayer's death, for qualified higher education expenses, and for the purchase of a first home. The taxpayer's vacation expenses do not qualify as an exception. The correct option is 4) Distributions made for the taxpayer's vacation expenses

Step-by-step explanation:

A taxpayer may qualify for exceptions to the additional tax on early distributions from specific retirement accounts like a traditional IRA or a 401(k). Some of these exceptions include:

• Distributions were made due to the taxpayer's death.
• Distributions made for qualified higher education expenses.
• Distributions were made for the purchase of a first home.

However, distributions made for the taxpayer's vacation expenses are not an approved exception and would not qualify to avoid the additional tax on early distributions. The correct option is 4) Distributions made for the taxpayer's vacation expenses