Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.
While I see paying off a mortgage as a great idea I also see some problems here which, to my thinking, have far greater negative consequences than the savings to be gained by paying off a mortgage.
First, if you do not roll over the money within 60 days of its distribution to you, you will be required to pay tax on the amount not rolled over as a withdrawal. If you are under 59.5 years old you will also lose 10% in an excise tax (call it a penalty tax) imposed against the early distribution of the funds. These taxes at the Federal and State level can devastate you if you have already retired the mortgage.
You will also lose the later benefit of this money for retirement. That was its real original purpose and you would be canceling that for yourself leaving you in a potentially disastrous circumstance.
The only real benefit of retiring the mortgage is the savings from paying interest to the lender but you will also lose the tax effect of this itemized deduction thereby raising taxes yet again.
All in all, it is a wonderful idea if it were not for the taxes that would be triggered. I think you would be better served by rolling over the money into what is called an IRA Rollover account. There it will continue to grow without taxes until you withdraw the money and it will be there for a rainy day need as well.