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!

Should I use my 401k to payoff my mortgage?

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.

Should I use my 401k to payoff my mortgage?

No! Bad idea. Besides paying taxes on it you will also be assessed a penalty. Costing you a total of 40% or more.

I would recommend that if you are currently adding to your 401k, that you temp. discontinue doing so, and take the extra $$$ and add it to your house payment. If you get focused you can make some really good progress.

Check out the Dave Ramsey website for more information.

Should I use my 401k to payoff my mortgage?

If you were to use your 401(k), how would you retire in the future? Keep in mind that compounding effects are very strong with money the earlier you have it in your 401(k).

Do the math and you'll see what I mean. $100,000 already invested in a 401(k) earning 9% interest for 20 years and with regular contributions of $10,000 each year will amount to about $1,072,000 in 20 years... but if you start with nothing with the same scenario (no $100,000 to start with), you'll earn $511, 601 in 20 years instead!! That's about 50% less money for your retirement just because you cashed out of the 401(k). Compounding is very strong, but especially if you start early with a lump sum... if you pay off the mortgage, there is no lump sum to start with.

Just pay a little more towards your mortgage each month.

Should I use my 401k to payoff my mortgage?

Really bad idea.

You will take 2 taxes hits, plus possibly the 10% penalty. First you will pay taxes on the 401k money, then you will lose the tax advantages of the mortgage.

Should I use my 401k to payoff my mortgage?

Most 401(k) plans won't allow you to take money out of the plan to pay off your debt. Consider that rule a gift. Debt can seem like a huge burden to a lot of people, but don't get overwhlemed. You should learn to budget differently and work gradually to either build up a large emergency fund (savings account at the bank) or pay extra cash on each monthly payment.

Definitly don't pull money out of your retirement account to pay off your housing debt.

Should I use my 401k to payoff my mortgage?

There may be the option to borrow from you 401k. Some plans allow that option. This way you don't have to pay the tax penalty.

Check with your plan provider.