Should I use my 401k to payoff my mortgage?
I would like to use my 401k to payoff my mortgage. I’m willing to take the tax penalty just to get out of debt and not worry about a mortgage payment that as of today still has about 25 years remaining on it. I feel its less stress for me to save and invest money for the next 20 years (retirement age for me) as opposed to making my mortgage payment. I realize the tax penalty is steep, but I also feel its worth it since I don’t want to continue working at this pace just to payoff my mortgage and invest what I can in my 401k.
My health is declining to the point where I struggle to continue working 40-50 hour workweeks at my job. Other than our mortgage and a small car loan of about $10k, we have zero debt.
Is my strategy to cash in my 401k early worth the risk? I’m also concerned about the future of the economy and mainly my health.
Should I use my 401k to payoff my mortgage?
Thanks in advance!
interesting question indeed. If you are going to work for another 20 years, I would have to say no do not use the 401k to pay off the mortgage. There are several reasons I say this. First, the mortgage interest is a deduction from your taxable income. Second, your 401k is earning money for you tax deferred. Third, you will have to pay taxes on your 401k withdrawal, which I would imagine will kick you into the very highest tax bracket plus 10% penalty so that you will in effect receive only maybe 55% of the withdrawal amount if you live in a high local tax environment.
I know it is somewhat of a problem to remember each month to pay the mortgage, but it is just one of the monthly bills that have to be paid along with the electric, telephone, sewer, etc.
An option that perhaps you should consider is each month paying an additional amount towards the pricipal of your mortgage so that you can pay it off ahead of time. If you have 25 years remaining on the mortgage, you are paying currently mostly interest. By adding an additional $100 a month you will cut the payment time maybe in half.
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