Americans borrowed an estimated $88 billion last year to pay for needed health care. (If you’re behind in your retirement savings or you have a lot of non-mortgage debt, no, you can’t take that.
Cashing out your 401(k) might seem like an easy way to pay off your mortgage early and become debt-free once and for all, but what it will cost you in the long run just isn’t worth it.
Your 401(k) loan interest rate is likely lower than the rate on your other debt. You pay the 401(k) loan interest to yourself, not someone else. The big risk you run with this strategy is the possibility of losing your job and having to pay the entire 401(k) loan balance back within 60 days.
A. J.H., taking money from a retirement account to pay off a mortgage can make a lot of sense when the tax cost is modest compared with the savings you get from eliminating the cost of interest.
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Paying off a mortgage when you retire, even if you have to use retirement funds to do so, may sound very appealing. We’re not making much money in savings accounts or money markets right now, anyway.
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The most common advantages to using 401(k) assets to pay off a mortgage include freed-up cash for other living expenses, elimination of interest payments to the lender, and increased asset protection.
Since your plan is to pay off the mortgage, once you retire, you won’t have the mortgage deduction available to offset the tax on your 401k withdrawals. See, there are 3 main areas to offset.
Can I Cash Out My 401(k) to Pay Off My House? For some people, paying off a house means eliminating the mortgage so you own the home free and clear. In other circumstances, it might mean accessing just enough money to pay what it takes to avoid foreclosure.
Leaving 401(k) money on the table means shortchanging retirement funds. Get your employer match. Although you are paying ahead on your mortgage, don’t fail to get all you can with your employer’s.
but if you have a family and a mortgage, you’re better off focusing on the higher end. Of course, the tricky part of building emergency savings is that you don’t get any help from the IRS in doing so.