Interview Notes • Luther, age 54, and Lexi, age 56, are married and file a joint return. • Lexi has family coverage through her High Deductible Health Plan (HDHP) at work. In 2023, Lexi contributed $2,350 to her Health Savings Account (HSA). Luther made contributions totaling $3,000 to his HSA in 2023. • Luther's Form 1099-SA shows a distribution from his HSA of $3,000. They have receipts showing they paid: o $300 for new eyeglasses for Lexi, o $2,200 in copays for doctor visits and tests, o $400 for over the counter medication, and o $100 for Personal Protective Equipment (PPE) to prevent the spread of COVID-19 and home COVID-19 tests • In April 2023, Luther was diagnosed by his physician with a terminal illness. In May, Luther and Lexi decided to take a luxury vacation before his health deteriorated. They used a distribution from Luther's IRA to pay for it. They received a Form 1099-R showing $15,000 in Box 1, and code 1 in Box 7. • Lexi sold a used handbag on an online marketplace. She received a Form 1099-K reporting the $700 sale. She originally paid $1,000 for the bag. 8. Luther qualifies for an exception to the additional tax on early distributions. a. True b. False

b. False Based on the information provided, Luther does not qualify for an exception to the additional tax on early distributions from his IRA. The Form 1099-R shows a distribution with code 1 in Box 7, which indicates an early distribution with no known exception. Generally, distributions taken from an IRA before age 59½ are subject to an additional 10% tax unless an exception applies. Exceptions to the early distribution penalty include distributions made due to disability, certain medical expenses, a series of substantially equal periodic payments, death, and a few other specific circumstances. However, taking a luxury vacation, even in the case of a terminal illness diagnosis, is not one of the exceptions to the 10% early distribution penalty under the current tax law. Therefore, unless there are additional facts not disclosed that would provide for an exception (such as if Luther is disabled as defined by the IRS), the distribution used to pay for the vacation would be subject to the additional 10% tax for early withdrawal.

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