Thank you for bringing this up! I'm actually using some of the money for education expenses this semester. How exactly do I document that to avoid the penalty on that portion?

For qualified education expenses, keep detailed records of all tuition, required fees, books, and required supplies paid during the tax year. The expenses must be for yourself, your spouse, or your dependents at an eligible educational institution. You'll use Form 5329 to report the early distribution and claim the exception. On line 2 of the form, you'll enter exception code "08" and the amount that qualifies for the education expense exception. This amount won't be subject to the 10% penalty, though it will still be taxable income if it's coming from earnings in your Roth IRA.

Fidelity let me do 45% last year when I needed to. I've heard TD Ameritrade caps at 50%. Probably worth calling your specific custodian to ask before counting on the 90% withholding strategy.

I hadn't thought about that approach! Do you know what kind of documentation I should include to explain my situation? And did your accountant face any pushback from the IRS on this?

For documentation, I included a signed statement explaining my travel circumstances, copies of my travel itinerary showing the brief nature of my absence, and evidence of my continued ties to the US (apartment lease, utility bills in my name that continued during my absence). My accountant said that for brief absences, especially around holidays or year boundaries, the IRS tends to be reasonable as long as you clearly document that your absence was temporary and that you maintained your US ties. He said he's filed returns this way for years for clients with international travel and never had an issue. The key is being transparent and providing clear documentation rather than trying to hide anything.

Most consumer tax software struggles with dual-status returns. I tried using TurboTax for mine last year and ended up having to abandon it and go to a CPA. The software just isn't designed to handle the complex forms and calculations needed for dual-status returns.

I had the same issue and found SprinTax was actually designed specifically for international/dual-status situations. It costs more than regular TurboTax but was worth it because it handled all the weird form combinations needed for dual-status returns. Still complex but at least it was possible to complete.

Do those limits apply to both Traditional and Roth 401k combined? Or can I do $23,000 in Traditional and another $23,000 in Roth? Also, does the employer match count toward the limit?

The $23,000 limit applies to your combined Traditional and Roth 401k contributions - it's a total limit for all your elective deferrals. So you can split it however you want between Traditional and Roth, but the total can't exceed $23,000 (or $30,500 if you're 50+). Good news though - employer matching contributions don't count toward this limit! They fall under a separate, much higher limit (the "415(c) limit") which is $69,000 for 2024. This higher limit includes all contributions to the plan (your elective deferrals plus employer contributions).

Code "E" actually means distribution under a QDRO (qualified domestic relations order), which is usually for divorce situations. For excess contributions, you should normally see code "P" for principal or code "8" for earnings on excess contributions. You might want to contact your plan administrator because they may have coded your 1099-R incorrectly.

3 Good point about retirement accounts! I'm an IC too and my Solo 401k saves me thousands in taxes each year. Question though - for meals, I thought the 50% limit was temporarily changed to 100% for 2021-2022? Has that gone back to 50% for 2023 returns?

23 Yes, the 100% business meal deduction was a temporary COVID relief measure for 2021 and 2022 only. For 2023 and beyond, we're back to the standard 50% deduction limit for most business meals. The key is proper documentation - not just the receipt but notes on the business purpose and who you were meeting with if it was a client meal. For solo meals while traveling for work, document which job you were working that required overnight travel. Digital receipt apps with note fields are lifesavers for audit protection.

4 Thank you for the practical advice! For the S-Corp, is it too late to set one up for this tax year? I've already been working as a sole proprietor for about 6 months. Also, what kind of costs should I expect for the initial S-Corp setup and ongoing maintenance?

Oh that's good to know! My wife did change her name after we got married. Does the name on the tax return need to match her W-2 or her updated Social Security card? Her W-2 still has her maiden name.

The name needs to match what's on her Social Security card. The IRS systems check against the Social Security database, not her W-2. So if she's already updated her name with Social Security, use her new name on the tax return even if her W-2 still shows her maiden name. If she hasn't updated her Social Security card yet, you should either do that before filing or use her maiden name on the tax return this year. You don't need to delay filing if her SS card still has her maiden name - just file with whatever name is currently on her Social Security card and make the update for next year.

What software did you use to figure that out? We're trying to decide between TurboTax and H&R Block and wondering which is better for figuring out deductions for newly married homeowners.