Q. I am going to retire soon, should I pay off my mortgage early?
A. If your source of fund is your retirement money, such as savings in 401(k), it's best not to pay off your mortgage early, for one simple reason - the tax!
Money withdrawn from 401(k), even there is no penalty if you have exceeded the no-penalty age, there is still tax since the entire amount will be treated as your income, therefore subject to both Federal and State income taxes. Depending on your mortgage balance, this could be a sizable amount tax due! In other words, to pay off $100,000 mortgage balance, you need to withdraw a lot more out of your retirement account!
A. If your source of fund is your retirement money, such as savings in 401(k), it's best not to pay off your mortgage early, for one simple reason - the tax!
Money withdrawn from 401(k), even there is no penalty if you have exceeded the no-penalty age, there is still tax since the entire amount will be treated as your income, therefore subject to both Federal and State income taxes. Depending on your mortgage balance, this could be a sizable amount tax due! In other words, to pay off $100,000 mortgage balance, you need to withdraw a lot more out of your retirement account!
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