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Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I have a 401K worth appx $750k. I am 56 and retired 3 years

Customer Question

I have a 401K worth appx $750k. I am 56 and retired 3 years ago and currently I have to take a 72T distribution of $40k PLUS I am having to take another 40K per year to pay bills. I owe $175 on my mortgage, the house is valued at appx $375K. My husband works and makes about $60k a year. I know I need to stop taking an additonal $40 k from my retirement asap but can't do that unless I pay off the house. The interest rate on my mortage is 4.5 and I know that is low, the payment is $2,300 a month. If I reduce my monthly obligations by that much, I can live on the 72T distribution. SHOULD I PAY OFF MY MORTAGE, leaving me with a portfolio worth about $500k. My husband is self employed and does not have an additonal retirement account. Thanks
Submitted: 6 years ago.
Category: Tax
Expert:  Jacy replied 6 years ago.



Your mortgage payment seems excessively high considering you are paying 4.5%. I will have to assume you are paying a high amount in principal each month for it to be that high. The interest portion should be around $656 per month. Perhaps you could refinance, if only to stretch the loan out for a longer payment period. You should be able to lower the payment significantly.


If you decide to pay off the mortgage, the taxes and penalties will be a least 43%. This means you would need to take out a gross distribution of $307,000. I agree with your financial adviser. Since this is your only retirement asset, it should be preserved, at least until you are 59 1/2. Then you won't have the 10% penalty.


Thank you for your question. Let me know if I can help you further.