Hi Mrs. Chen,
You don’t mention your ages, but the 10% penalty generally applies to distributions from retirement accounts when the recipient is under age 59.5. But there are other exceptions to the 10% penalty that may apply, depending on the type of account and your specific circumstances. One possible exception is when the employee separates from service during or after the year the employee reaches age 55. There are other exceptions that could apply. You can find the list of exceptions in this IRS guide.
If the additional income related to the retirement withdrawal causes you to owe federal tax at year end, it may also trigger underpayment penalties. You can avoid underpayment penalties by paying at least 90% of the tax owed on the return or 100% of the previous year’s tax. If your income exceeds $150K, then you must have paid in at least 110% of the previous year’s tax to avoid penalty. The tax payments must be made either in withholding or in 4 equal installments during the year. I recommend that you check to see if any taxes were withheld from the distribution. If not, you will want to make an estimated tax payment now or before 1/15/2025 to cover any taxes owed for the distribution and reduce any penalties. You can read about estimated taxes and how to avoid underpayment penalties in this TurboTax article.
If you sell your house in 2025, there are several things to consider. If the home has been both yours and your husband’s primary residence for two out of the past five years, you can exclude up to $500K of gain from your taxable income. You’ll want to have good records of your original purchase price, plus any improvements you made to the home while you lived there. Here is a link with more information about selling a home.
Thanks for participating in today's Ask The Expert event!
Kimberly, CPA for over 30 years
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
