401K withdrawl to pay down/off mortgage?

4

4kids4karen

DIS Veteran
Joined
Dec 25, 2006
I am doing a complete edit. Sorry if you already read through. I have updated info that changes this. So also doing a shorter version.

So the 401K in question was a job DH worked for 5 years as a government contractor between being Active Duty and a Federal Employee and he doesn't have a lot in it but it could but a dent in the mortgage. I am guessing 30K. He is stuck in traffic and didn't know the amount either. This 401K has sat, he admits he should have rolled it into an IRA a long time ago, but he never did.

DH would be 59 1/2 in June 2020. The amount would not throw us into the next tax bracket. I double checked the 2020 brackets and we have a long way to go before we would be bumped into the next bracket.

So I am wondering what are the negatives to a withdrawal and just putting it towards paying debt? We are close to being debt free. We both work full-time, in addition to we both get military pensions and have 401K with our current jobs that exceed this 401K. I also have a separate IRAs.
 
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4kids4karen said:
I am doing a complete edit. Sorry if you already read through. I have updated info that changes this. So also doing a shorter version.

So the 401K in question was a job DH worked for 5 years as a government contractor between being Active Duty and a Federal Employee and he doesn't have a lot in it but it could but a dent in the mortgage. I am guessing 30k. He is stuck in traffic and didn't know the amount either. This 401K has sat, he admits he should have rolled it into an IRA a long time ago, but he never did.

DH would be 59 1/2 in June 2020. The amount would not throw us into the next tax bracket.
So I am wondering what are the negatives to a withdrawl and just putting it towards paying off the mortgage? We are close to being debt free. We both work full-time, in addition to we both get military pensions and have 401K with our current jobs that exceed this 401K.
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I seen your first post. Thank you to both of you for serving your country.
I wouldn’t even think about it. You are paying or should be paying very very low interest on your house.
 
This is a better question for a financial advisor. But when we wanted to pay off our mortgage 20 years ago because my husband who is an attorney had a big case settle our advisor recommended no. We could afford the payment and at that time you could still deduct mortgage interest. He said that it would be far better to invest that money for the future. We ended up doing it anyway because it was more important for my husband to pay it off. However in hind sight I would now prefer to have that money in our investment accounts since it would have probably doubled or more by now.
 
Thanks for the replies. I guess I view this as "the forgotten account." I just don't think we will miss this account in the future. Good we have a year to really decide since the earliest withdrawal would be June 2020.

My other thought is to withdrawal and tell my son to pick any private college he wants and use it for a private college. I have brought up a few private colleges to which DH always comments how expensive private colleges are. We already have plans to pay for a state college using Florida Bright Futures, GI Bill, and his 529, and if needed we will pay the rest in cash. He wants to go to the University of Florida right now, his back-up school is University of South Florida. He has never considered private colleges because the first thing his dad responds is private colleges cost too much. So then our plan for paying for college would roll down to his sister, who will probably go to University of South Florida. She isn't quite as studious as her brother, so she isn't trying to get into one of the harder acceptance schools. She has mentioned St Leo as an option, which is a private college. Considering traffic, we live about 15 minutes North of USF and 20 minutes South of St. Leo.
 


Would you be okay with leaving it alone (or rolling it into an IRA), and knowing that you COULD put it towards the mortgage at any time? This is something we bat around in our house. We COULD pay off the mortgage at any time, and I do want it paid off when DH retires--but, it could be the week before. I know you're looking at this as found money, and I don't think any of your ideas are bad. Since you seem unsure, it might be best to just leave it alone--sometimes a solution presents itself when you're not looking. the only thing I'd be concerned with on the "private college" option is, once you commit to do this for one, you have to do it for all children, and $30k or so isn't going to go very far, in terms of college tuition. Not saying it's a bad idea--I'm all for a quality education--just make sure you've thought it all through.
 
4kids4karen said:
Thanks for the replies. I guess I view this as "the forgotten account." I just don't think we will miss this account in the future. Good we have a year to really decide since the earliest withdrawal would be June 2020.

My other thought is to withdrawal and tell my son to pick any private college he wants and use it for a private college. I have brought up a few private colleges to which DH always comments how expensive private colleges are. We already have plans to pay for a state college using Florida Bright Futures, GI Bill, and his 529, and if needed we will pay the rest in cash. He wants to go to the University of Florida right now, his back-up school is University of South Florida. He has never considered private colleges because the first thing his dad responds is private colleges cost too much. So then our plan for paying for college would roll down to his sister, who will probably go to University of South Florida. She isn't quite as studious as her brother, so she isn't trying to get into one of the harder acceptance schools. She has mentioned St Leo as an option, which is a private college. Considering traffic, we live about 15 minutes North of USF and 20 minutes South of St. Leo.
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Not sure what kind of research you have done on colleges, but University of Florida is a much better school than St. Leo in a ton of measures. It is ranked higher, it has a higher average starting salary for graduates, it has a higher 4 year graduation rate, etc. St. Leo is much smaller, if that matters to you, but I liked going to a large university as it had so many opportunities for academics as well as extracurriculars.

https://www.usnews.com/best-colleges/compare?xwalk_id=134130&xwalk_id=137032
 
I would consult a financial advisor. What if you suddenly have unexpected medical expenses? Once you take that money out, it’s not making money. What if there’s another housing crisis and home values take a dive?

If your son gets into UF or USF, it’s likely he will go for little or nothing out of pocket. That’s huge. Graduating without loans is a great start for any student. Which subject does he want to study?

You have to look at cost vs what he will get in return for his investment.
 


4kids4karen said:
My other thought is to withdrawal and tell my son to pick any private college he wants and use it for a private college. I have brought up a few private colleges to which DH always comments how expensive private colleges are. We already have plans to pay for a state college using Florida Bright Futures, GI Bill, and his 529, and if needed we will pay the rest in cash. He wants to go to the University of Florida right now, his back-up school is University of South Florida. He has never considered private colleges because the first thing his dad responds is private colleges cost too much. So then our plan for paying for college would roll down to his sister, who will probably go to University of South Florida. She isn't quite as studious as her brother, so she isn't trying to get into one of the harder acceptance schools. She has mentioned St Leo as an option, which is a private college.
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on the college aspect-if there's any chance either kiddo will qualify for subsidized loans during their attendance then consider letting money sit as long as possible to earn interest while your kiddo uses those interest free loans. i know that some types of military pensions are exempt from fafsa income consideration so while you might think your current income knocks them out of this category-it may not.

i recently posted about how we used this method w/our 2018 college grad. she qualified for amounts that we could have paid as she went out of pocket for but we opted to have her take the loans-which we turned around and paid off right before they started to come due/started to accrue interest resulting in thousands of dollars in savings to us by virtue of the interest those monies earned during her attendance.

as for the house payoff-talk to a financial advisor. for us it was a no brainer to pay off early b/c we were at a point where we netted no tax savings and had the money in a non penalty based/fairly low earning account.
 
Jen and Ashwin said:
Not sure what kind of research you have done on colleges, but University of Florida is a much better school than St. Leo in a ton of measures. It is ranked higher, it has a higher average starting salary for graduates, it has a higher 4 year graduation rate, etc. St. Leo is much smaller, if that matters to you, but I liked going to a large university as it had so many opportunities for academics as well as extracurriculars.

https://www.usnews.com/best-colleges/compare?xwalk_id=134130&xwalk_id=137032
Click to expand...

Yea, her GPA has dropped and she doesn’t know if she will get into USF so St Leo is a back-up option. USF entry requirements/standards are going up. Plus, St Leo just started a tumble team and one of her friends is going to be in the inaugural team. She has been doing competition cheer since age 5. She doesn’t have plans to cheer in college. DD has looked at some South Florida schools but I have told her I am not inclined to pay for her to go away to school when we have good options locally. I am also okay with our local community college and then she can transfer to USF after getting her associates. I am okay with paying for any school my son wants, home or away, because he has been dedicating himself to his studies and really working hard. He works too hard and stresses himself out over his grades. (FYI- we do not pressure our kids over grades. I have a GED, went to community colleges before joining the military. Got my bachelors in the military and also now have a Masters). I have also mentioned the joining Air Force ROTC at USF to both and both said no. My daughter, I still feel may enlist into the Air Force although right now she says no.
 
4kids4karen said:
Yea, her GPA has dropped and she doesn’t know if she will get into USF so St Leo is a back-up option. USF entry requirements/standards are going up. Plus, St Leo just started a tumble team and one of her friends is going to be in the inaugural team. She has been doing competition cheer since age 5. She doesn’t have plans to cheer in college. DD has looked at some South Florida schools but I have told her I am not inclined to pay for her to go away to school when we have good options locally. I am also okay with our local community college and then she can transfer to USF after getting her associates. I am okay with paying for any school my son wants, home or away, because he has been dedicating himself to his studies and really working hard. He works too hard and stresses himself out over his grades. (FYI- we do not pressure our kids over grades. I have a GED, went to community colleges before joining the military. Got my bachelors in the military and also now have a Masters). I have also mentioned the joining Air Force ROTC at USF to both and both said no. My daughter, I still feel may enlist into the Air Force although right now she says no.
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I misunderstood. I thought your son was looking at St. Leo. If he can get into University of Florida, it would be a great school and not cost much being in state. That would be my first choice if I was in his shoes. For your daughter, it looks like on the St. Leo website that they offer a transfer program with a 50% tuition reduction, so that could be an option for her to start at the community college and then apply to UF, USF or St. Leo. Good luck to both your kids.

ETA: My cousin enlisted in the Air Force when she graduated from high school 2 years ago and loves it. She has even started considering perusing a military career like her mother (Navy) and grandfather (Army).
 
tvguy said:
401ks and IRAs are money to be used for retirement. Period. So no. But I would certainly look at other ways to pay off the mortgage. I can't imagine being 58 and still having a mortgage.
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Like I mentioned in the other post, in my job I speak to people in their 60, 70s and sometimes 80s financing homes. What I do know from your past posts is our lifestyle are vastly different. Many military often do not even buy homes until after retirement or like in our case, until you are on your “Sunset Tour.” Meaning you know you are on your last military assignment and will retire in the area. Those that buy homes earlier plan to turn them into rental investment property. DH and I met and lived overseas for many years so buying a home early in our marriage wasn’t an option. With his former marriage, they lived in her family home or base housing so no need to purchase. So having a mortgage after age 58 is reality for many. Same for me, my military assignments prior I lived in base housing or my parents home near the base.
 
I would let it sit. If you view it as 'forgotten $' then keep it. You'll have weddings to pay for one day. You may want to help your children with a downpayment on a house. You may have unexpected medical bills.
 
I take a different approach....
First I am not sure at his age or if you use the IRA for???? but in most cases there is a 10% penalty if you draw the money please look into that first. I did not look into this part...
So assuming there is not I would pay off my Mortgage. A lot of people say Mortgage is good debit well it is to an extent and that extent is you need to borrow money... However with the new tax laws makes it less and less attractive but even with the old tax laws it was not very attractive... the bottom line is people only got a small amount back on this write off as first you had to hit the amount above a standard deduction and once you did that the amount above it was a write off so in the end the first 14K or more was worthless as you get that amount regardless.... As far as making more on your money that paying off debit please tell me where you can guarantee me over the next 30 years my money will grow as fast as an interest rate that compounds daily... I will say it can be done but that is if you actively move your money around and pick all the right funds or stocks but being few people do this period and even fewer will pick the right funds or stocks.... As far as having money for the unexpected well if you do you are fine if you don't you will likely have value in your house... ok so some will say house values can go down... Bottom line is stocks can go down a lot faster so if you need the money you may take a loss or have very little -- to have your cake and eat it to so to speak your money must be in a bank and that way you know how much you have if you need to use it and in that case you will never get more than your loan interest based on averages over the term of the loan... so I say pay the mortgage and have peace of mind.
 
tvguy said:
401ks and IRAs are money to be used for retirement. Period. So no. But I would certainly look at other ways to pay off the mortgage. I can't imagine being 58 and still having a mortgage.
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Probably the main reason they both were in the military a long time. So your starting later in life in getting a home.
 
I wouldn't use it for the mortgage. I also wouldn't use it for private education unless there is some reason why the private school is vastly better for a specific degree. The University of Florida is a great school. Why do you think you have to roll it to an IRA? Most large company 401k plans have much lower fees than an IRA. If it is a small mom and pop company then you may be better to move it to an IRA but there is no burning reason to move it to an IRA. Also, consider that folks are living much longer and you very well may need that money during your retirement. Have you really planned out your retirement to determine that you will have enough income long into the future? Have you been contributing the max to your retirement accounts every year? I am always amazed when I hear folks cashing out retirement accounts to fund kids education. You can borrow for education but you can't borrow for retirement. If you aren't financially able to support yourself in retirement you then become a burden on your adult children. Mortgages are at an all time low. Mine is at 3.5% fixed and I can do better than that with even conservative investments. Leaving money in investment or retirement accounts leaves the money liquid. While your house is an asset there is no guarantee that you can quickly access those funds if needed.
 
dclpluto said:
Probably the main reason they both were in the military a long time. So your starting later in life in getting a home.
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Well, my FIL was career Air Force and my wife's Step-sisters husband too. They had base housing until they retired, and had 27ish years to save for that retirement home and paid cash, no mortgage. But both settled in Vidor Texas, where at the time you could buy a decent new house for $17,000 or less
 
tvguy said:
Well, my FIL was career Air Force and my wife's Step-sisters husband too. They had base housing until they retired, and had 27ish years to save for that retirement home and paid cash, no mortgage. But both settled in Vidor Texas, where at the time you could buy a decent new house for $17,000 or less
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If your single or a high rank yes it’s easy to save money in the military. You have to pay for housing if you want your spouse to live with you. Your paying rent all them years.
 
dclpluto said:
If your single or a high rank yes it’s easy to save money in the military. You have to pay for housing if you want your spouse to live with you. You ha e to pay rent all them years.
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NCO for both. Is thant high rank? Not a lot of housing options in Japan, Africa, France etc off base.
 
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tvguy said:
NCO for both. Is thank high rank? Not a lot of housing options in Japan, Africa, France etc off base.
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Nco is enlisted. They probably were a e-8 or e-9 when they retired since they had a lot of years in that’s a a SNCO In there later years they were making some decent money.
 
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