Oh that's really helpful! My dad sold his house about 3 years ago and has been renting since then, so it sounds like he would qualify. Does the money have to go directly to the home purchase, or can he just give it to me and then I use it for the down payment?

Sounds like your dad would qualify since he's been renting for the past 3 years. That meets the IRS definition of a first-time homebuyer. Regarding the funds, your father should take the distribution directly from his IRA and then use those funds toward your home purchase. While there's no specific requirement that the money has to go directly from the IRA to the title company, the IRS does look at the purpose of the withdrawal. The safest approach would be for him to document that he's using the funds for your qualifying first-time home purchase. Have him keep records showing the withdrawal and then either a gift letter to you or direct payment toward closing costs or down payment.

I used mine 3 years ago without issues. Just make sure you keep all documentation: IRA withdrawal statements, closing documents, proof the funds were used for the home purchase within 120 days, etc. As long as you're following the rules and have documentation, you should be fine even if audited.

I actually hadn't thought about the FSA option! Does it provide the same tax advantages as an HSA? And what happens to any FSA funds when we transition to the HDHP with an HSA in 2025?

FSAs do provide a similar tax advantage by allowing pre-tax contributions that reduce your AGI, similar to an HSA. However, they typically have much lower contribution limits (usually around $3,050 for 2023) compared to HSA limits ($7,750 for family coverage). Regarding your second question, FSA funds generally need to be used by the end of your plan year, though some employers offer either a grace period (usually 2.5 months) or a carryover option (usually $610 maximum). If you don't use the funds within these timeframes, you forfeit them - that's the big downside compared to HSAs. When you transition to an HDHP with HSA in 2025, you'll need to either spend down your FSA funds before the new plan year or see if your employer offers that limited purpose FSA I mentioned that can coexist with an HSA.

This is great advice! When I had my second child last year it counted as a qualifying life event and I was able to switch from a PPO to an HDHP mid-year. Started contributing to my HSA right away for the remaining months.

How much did the CPA charge? I'm trying to figure out if the cost would be worth it compared to potential savings.

My CPA charged $450 for my return, which included W-2 income, investment income, and some small business income from consulting. Given that he saved me $3,800, it was definitely worth it! Most CPAs I researched charged between $350-700 for returns with complexity similar to yours. The key is finding someone who specializes in the areas relevant to your situation - in your case, someone experienced with S-corporations and investment income.

Can you elaborate? I'm also getting K-1 income from an S-corp and just using TurboTax. Now I'm worried I'm leaving money on the table.

Can you explain more about the trust option? Wouldn't that defeat the purpose of giving the girlfriend financial independence if the money is tied up in a trust for the kids?

You're right that a trust solely for the children wouldn't address the goal of financial independence for the girlfriend. What my attorney suggested (and what we ended up doing) was a combination approach: a direct gift to my partner for her immediate financial security, plus a separate family trust where she was both a beneficiary and a trustee. This had several advantages: it reduced the immediate gift tax implications by splitting the amounts, it provided structured financial security for both her and our children, and it created an additional layer of documentation showing the personal nature of these financial arrangements. The trust paperwork explicitly referenced our family relationship, which further reinforced that these were personal financial planning decisions rather than business compensation.

Bad idea. The IRS would absolutely flag that as suspicious. Going from $50K to suddenly hundreds of thousands in "contractor fees" would trigger an audit instantly. Plus, even if it was legitimate, she'd have to pay self-employment tax on all of that, which is around 15%. That's a huge tax hit compared to receiving it as a gift.

I didn't even think about state implications! I'm in Texas so no state income tax for me thankfully, but that's a really important point for others in this situation. Did your state come after you even after the federal statute had passed?

Yes, exactly what happened to me. The feds identified unreported income right at the end of their statute period, and then my state (New York) piggy-backed on that assessment even though their normal 3-year period had passed. They have a provision that gives them an additional year to make assessments if the IRS makes changes to your federal return. It was a mess to sort out because the federal issue was relatively minor but triggered state penalties and interest that had been accumulating longer. So even in Texas with no income tax, make sure there aren't any other state tax implications from the unreported distributions.

From my experience working in tax resolution, there's a huge backlog at the IRS. They're still processing some mismatches from 2018-2019, especially with COVID delays. Just because they haven't sent a notice yet doesn't mean they won't. Their automated matching system will eventually catch 1099-R discrepancies.