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Posted: 9/9/2013 7:06:41 AM EST
Please explain the in's and out's to paying off a mortgage with a 401k Distribution

Anybody here done it?

Why or why not?
Link Posted: 9/9/2013 7:07:15 AM EST
[Last Edit: 9/9/2013 7:07:24 AM EST by peekay]
Easy: don't do it.
Link Posted: 9/9/2013 7:08:17 AM EST
How much?

All at once or monthly?

details, man, we need 'em.
Link Posted: 9/9/2013 7:08:20 AM EST
Well without any detail on your situation, FPNI.
Link Posted: 9/9/2013 7:09:51 AM EST
Well, I had a buddy that did it and then 3 or 4 months later was laid off. Caused all kinds of problems.
I wouldn't do it.
Link Posted: 9/9/2013 7:10:13 AM EST
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Originally Posted By peekay:
Easy: don't do it.
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I'm no expert but this seems right due to taxes/penalties and loss of the interest deduction.

The only positive is the interest you pay goes back into your 401k, but the money you draw isn't making a return so I'd say that's a wash at best.

That's how I see it.
Link Posted: 9/9/2013 7:10:31 AM EST
In all honesty which way do you think taxes will go over the next thirty years? Post tax investments are where it's at.
Link Posted: 9/9/2013 7:10:43 AM EST
Moar details, just off the top of my head without details, potentially large tax bite now and keep in mind that fixed mortgage payments are "cheaper" in the future.
Link Posted: 9/9/2013 7:11:25 AM EST
[Last Edit: 9/9/2013 7:14:15 AM EST by WildApple]
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate
Link Posted: 9/9/2013 7:11:56 AM EST
Not knowing your age, balance of Mortgage, etc., etc., etc., I could be wrong.

But, if your mortgage has a low rate, why the hurry to pay off 3-4% when you can be earning 6-8%?

If you're going to do it though, I'd suggest NOT taking a disbursement, and simply stopping your contribution and maximizing the speed in which you pay off your mortgage...you could probably double or triple your monthly payment, and direct to principle and be done paying your mortgage in 5-7 years.

You will pay upwards of 45% or so in taxes and penalties if you withdraw early...and any savings you'd have made on paying off your mortgage early are pissed away by that.

Link Posted: 9/9/2013 7:13:53 AM EST
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Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, but has not paid off their mortgage
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It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.
Link Posted: 9/9/2013 7:15:55 AM EST
Within the past 2 or so days someone asked the exact same question.

Bottom line: you either can't (as in hardship withdrawal) or shouldn't as it's not cost effective.

Search.
Link Posted: 9/9/2013 7:16:10 AM EST
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Originally Posted By watchwatch:

It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.
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Originally Posted By watchwatch:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, but has not paid off their mortgage

It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value
Link Posted: 9/9/2013 7:17:28 AM EST
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Originally Posted By KILLERB6:
Within the past 2 or so days someone asked the exact same question.

Bottom line: you either can't (as in hardship withdrawal) or shouldn't as it's not cost effective.

Search.
View Quote

Don't have to take a hardship withdraw at retirement age
Link Posted: 9/9/2013 7:18:04 AM EST
With a distribution, you lose 10% right off the top. You are also taxed on the rest as income at the end of the year. If you did the max of $50k, you'll clear about $30k of that.

That's making ~$20k evaporate pretty quickly.

The one thing I'm not sure of is do they tax you on the distribution minus the 10% penalty or do they tax you on the entire amount pulled. Either way, a ton of your money is disappearing.

I've never looked into the hardship side of withdrawals, as I've never been in that situation.


I borrowed from mine to pay for most of my mortgage. I'm paying myself the interest rather than some bank. When I did it, I looked like a genius, because the market tanked ~50%. Since then, not so much, but I'm still paying myself.
Link Posted: 9/9/2013 7:18:35 AM EST
don't do it.

Get out of debt, have a steady contribution to retirement, then chunk what you have left at the home.
Link Posted: 9/9/2013 7:19:16 AM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate
View Quote



Now you have a ton of math to do and a decision to make based on the result.
Link Posted: 9/9/2013 7:19:19 AM EST
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Originally Posted By WildApple:

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value
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Originally Posted By WildApple:
Originally Posted By watchwatch:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, but has not paid off their mortgage

It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value


Give us some numbers man! Your tax rate, payment, standard deduction and all of that crap figure in to it.
Link Posted: 9/9/2013 7:19:36 AM EST
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Originally Posted By WildApple:

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value
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Originally Posted By WildApple:
Originally Posted By watchwatch:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, but has not paid off their mortgage

It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value


Is it an FHA or Fannie Mae loan? There are some loans that let you refinance 125% of the value. They were set up for the current equity issues.

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Link Posted: 9/9/2013 7:20:19 AM EST
If you are extremely financially sophisticated and think the market is going to tank and want to put the money into your house now and throw money at the market like there is no tomorrow and invest every penny you can into it then I say go for it.

More than likely if you have to ask you are not financially sophisticated enough to accomplish this.

For 99.99% of the population this is not a good move.
Link Posted: 9/9/2013 7:22:03 AM EST
[Last Edit: 9/9/2013 7:24:11 AM EST by NotAFudd]
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Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate
View Quote


I would call every HARP lender on the planet as long as I wasn't behind on payments. Although I dislike the program, it is there so might as well use it before pookie.

I think HARP does can help up to 2x LTV so 100k house can refi if valued at 50k.
Link Posted: 9/9/2013 7:25:11 AM EST
Originally Posted By WildApple:
Please explain the in's and out's to paying off a mortgage with a 401k Distribution

Anybody here done it?

Why or why not?
View Quote


You need to sit down with a financial advisor...not ARFCOM (no offense). As a financial advisor, I'd say that I don't know enough about your situation. In general, it is not a good idea to get into retirement funds to pay off debts. Unless you are about to be foreclosed on, leave your 401(k) alone. Your best bet is to cut your expenses and pay on your mortgage. Your retirement funds are for your...wait for it...retirement.

An appointment with a financial advisor, make one.
Link Posted: 9/9/2013 7:26:50 AM EST
[Last Edit: 9/9/2013 7:27:24 AM EST by NotAFudd]
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By GreenHell:


You need to sit down with a financial advisor...not ARFCOM (no offense). As a financial advisor, I'd say that I don't know enough about your situation. In general, it is not a good idea to get into retirement funds to pay off debts. Unless you are about to be foreclosed on, leave your 401(k) alone. Your best bet is to cut your expenses and pay on your mortgage. Your retirement funds are for your...wait for it...retirement.

An appointment with a financial advisor, make one.
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Originally Posted By GreenHell:
Originally Posted By WildApple:
Please explain the in's and out's to paying off a mortgage with a 401k Distribution

Anybody here done it?

Why or why not?


You need to sit down with a financial advisor...not ARFCOM (no offense). As a financial advisor, I'd say that I don't know enough about your situation. In general, it is not a good idea to get into retirement funds to pay off debts. Unless you are about to be foreclosed on, leave your 401(k) alone. Your best bet is to cut your expenses and pay on your mortgage. Your retirement funds are for your...wait for it...retirement.

An appointment with a financial advisor, make one.


Might be more helpful if you explained how to find a good FA because most here would have no clue. Most FA's I have run across have difficulty counting to Potato.
Link Posted: 9/9/2013 7:27:03 AM EST
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Originally Posted By NotAFudd:


I would call every HARP lender on the planet as long as I wasn't behind on payments. Although I dislike the program, it is there so might as well use it before pookie.

I think HARP does can help up to 2x LTV so 100k house can refi if valued at 50k.
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Originally Posted By NotAFudd:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate


I would call every HARP lender on the planet as long as I wasn't behind on payments. Although I dislike the program, it is there so might as well use it before pookie.

I think HARP does can help up to 2x LTV so 100k house can refi if valued at 50k.


HARP 2.0 eliminated LTV.
http://www.zillow.com/mortgage-calculator/harp-eligibility/
Link Posted: 9/9/2013 7:27:51 AM EST
[Last Edit: 9/9/2013 7:28:59 AM EST by NotAFudd]
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Originally Posted By AZ_Sky:


HARP 2.0 eliminated LTV.
http://www.zillow.com/mortgage-calculator/harp-eligibility/
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Originally Posted By AZ_Sky:
Originally Posted By NotAFudd:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate


I would call every HARP lender on the planet as long as I wasn't behind on payments. Although I dislike the program, it is there so might as well use it before pookie.

I think HARP does can help up to 2x LTV so 100k house can refi if valued at 50k.


HARP 2.0 eliminated LTV.
http://www.zillow.com/mortgage-calculator/harp-eligibility/


I think they just passed 3.0 iirc

ETA: Sorry not yet passed
Link Posted: 9/9/2013 7:31:12 AM EST
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Originally Posted By WildApple:

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value
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Originally Posted By WildApple:
Originally Posted By watchwatch:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, but has not paid off their mortgage

It would be pretty simple then?

Take disbursement
Pay taxes, but no early withdrawal penalties
Pay off mortgage
The end

How old is the mortgage? Most of the interest could already be paid.

Mortgage is 10 yrs old and loan cannot be refinanced due to still being underwater Loan to Value

Pull enough from 401k to get house in a position that you can refi to a current rate?
Link Posted: 9/9/2013 7:32:17 AM EST
Take a loan instead (roughly half of your 401K is available for that). Title is "clear" as far as the bank is concerned and you pay your self back the interest over time. It's probably not the smartest way to go about it but it's better than the 10% penalty plus your tax bracket.

The only downside there is that if you get laid off then you are forced to either pay it all back or take the 10% + tax bracket penalty. And then you will have to claim the other as income for the year (double whammy)!!
Link Posted: 9/9/2013 7:34:12 AM EST
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Originally Posted By peekay:
Easy: don't do it.
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Right answer here . You will pay income tax and a 10% tax penalty . Try to save money elsewhere and do it .maybe refi for a really short term.

Posted Via AR15.Com Mobile
Link Posted: 9/9/2013 7:37:39 AM EST
Originally Posted By WildApple:
Please explain the in's and out's to paying off a mortgage with a 401k Distribution


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issue: you wont have a 401K to retire with
Link Posted: 9/9/2013 7:40:07 AM EST
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Originally Posted By NotAFudd:


Might be more helpful if you explained how to find a good FA because most here would have no clue. Most FA's I have run across have difficulty counting to Potato.
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Originally Posted By NotAFudd:
Originally Posted By GreenHell:
Originally Posted By WildApple:
Please explain the in's and out's to paying off a mortgage with a 401k Distribution

Anybody here done it?

Why or why not?


You need to sit down with a financial advisor...not ARFCOM (no offense). As a financial advisor, I'd say that I don't know enough about your situation. In general, it is not a good idea to get into retirement funds to pay off debts. Unless you are about to be foreclosed on, leave your 401(k) alone. Your best bet is to cut your expenses and pay on your mortgage. Your retirement funds are for your...wait for it...retirement.

An appointment with a financial advisor, make one.


Might be more helpful if you explained how to find a good FA because most here would have no clue. Most FA's I have run across have difficulty counting to Potato.


Ask your friends and family for a recommendation. If there is no joy there then you'll have to do your own legwork. Grab the phone book and call for appointments. I used to work for a large national chain out of St. Louis before I went out on my own. Most of the people I worked with there could count WAY past potato. Bottom line, if you can't get a recommendation from a friend, you'll have to interview some yourself. I would defiantly talk to at least three FA's before I settled on one. Make sure to find out if they will charge you for a consultation before you go. Some do, most won't. Also, be courteous. Don't take up more than an hour of their time if you know you won't be doing any business with them.
Link Posted: 9/9/2013 7:40:15 AM EST
My 401k has been the biggest dog ever. Housing is a close second. Ive learned the 401k can lose half its value almost overnight (like in 2008-09) then it takes 5+ years to break even. Unless we have another decade like the 90's (which I wasn't a part of) this 401k jazz just doesn't work out. If I were to wipe out my 401k I would put it towards something that generates income like farming, livestock or a business not a house.
Link Posted: 9/9/2013 7:44:36 AM EST
Don't do it. I'm too lazy to type all the reasons but there are no good reasons to do this. Taking any sums of money out of a 401K is a loosing proposition on many levels. The loss of compounded growth alone is a killer. Continue to pay your mortgage, or pay double if you can, that will reduce the total amount you pay by quite a bit.
Generally speaking, even taking your normal distribution adds income and tax burden, so it's the last money you want to take.
Link Posted: 9/9/2013 7:59:15 AM EST
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Originally Posted By mongo001:



Now you have a ton of math to do and a decision to make based on the result.
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Originally Posted By mongo001:
Originally Posted By WildApple:
Lets assume the person is old enough to take a natural retirement disbursement, is underwater on the mortgage at an 8% rate



Now you have a ton of math to do and a decision to make based on the result.


And one set of math problems would be only taking out enough from the 401k to bring the current mortgage above water and refi at <4% for a 10-20 year time span, leaving more money in your 401k working at 6-8% while you're paying less than 4% on your mortgage.
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