Skimming a little off top of 401(k) to pay off mortgage...?

[Wolf359]

Depends on if there's any penalty. If you have to pay an early withdraw penalty it is not worth it IMO.

There was no penalty last year for 401k withdrawals so if this was being contemplated for a while, should have done it last year.

 

[ArrestMeRedZ]

...US law allow people to walk away in a foreclosure...

That depends on the state, on whether the mortgage was purchase money, whether owner occupied, whether waste was committed on the property, etc.

For instance that is correct if it is in California, if the mortgage was taken out when buying the property, and you didn't damage the property.

If you were in a state without purchase money laws, if you refinanced, if you stole the HVAC and range, etc.,etc., they can come after you for a deficiency judgement.

Apologize for getting off track.

 

[JeffKeryk]

I’ll take the contrarian view - pay it off.

Here’s why: risk tolerance and asset allocation are the bedrock of any financial plan. Most of the advice here is how to maximize returns for the OP’s cash flow and investment portfolio while completely ignoring his risk tolerance. Covered calls? Options? These are sophisticated tools that are not suitable for most investors. Sure, we can analyze rates of return and nuanced, effective, portfolio management. None of that matters.

The OP stated, clearly, that he would feel better with a paid off house. He will sleep better with it paid off.

That’s a very clear, and very different than the presumptive, risk tolerance, that is missing from all the other posts.

We’re talking $29,000 here, right? Pay it off, sleep well, and don’t worry about a few percentages one way or the other on what is really, economy car money, not millions in a portfolio.

Sure a paid off house is great. And I agree, minimizing risk is a good strategy.
But incuring a big penalty by pulling cash out of a 401K? That's a costly move.
I think the penalty is 10% plus taxes. Ouch! And he is spending money he may need in later years. There ain't no crystal balls...
If he is at the end of his payments, his interest expense is minimal.

That's why he needs to look at the cost benefit ratio. If he hates the payments so bad, then perhaps he is willing to incur the 401K early withdrawl penalties. It depends on the numbers, which we don't know, and what is important to him.

 

[supton]

I'm still not convinced that the op was taking money out of the 401k... although re-re-reading his post, it does sound like he wanted to both take some money out AND contribute less, now that I've read it for a sixth time.

IMO, if he wanted to contribute less, so as to pay off the mortgage so that it'd be one less liability over his head, I think that makes sense. Yes it trades away 15 years of growth. At the same time, what if he gets forced out of a job in a couple of years? or wants to leave a good job for something of lesser pay? If he's concerned about lessening the amount of liabilities weighing him down, then it's a concern for him, and perhaps it's time to make that debt go away. If he pays it off in a couple of years, the money he puts in afterwards (that he indicates that he doesn't need) can still grow.

But if he wanted to pull money out, IMO the penalties (taxes and penalty) outweigh the gain of getting rid of the mortgage.

 

[Astro14]

I'm not certain if the CV-19 suspension of penalties for early withdrawal is still in effect. That would fix that part.

But the OP hasn't come back...so, while the details are not clear, we are left with his intent to reduce risk.

 

[Dave Hess]

Depends on if there's any penalty. If you have to pay an early withdraw penalty it is not worth it IMO.

Many 401K plans allow the employee to take a loan without any tax penalties.

Obviously they have to pay the loan back.

 

[Sam_Julier]

Pay off the mortgage. Let the $29,000 continue to earn dividends and the market rate of return.

Sleep well.

 

[AZjeff]

I'm still not convinced that the op was taking money out of the 401k... although re-re-reading his post, it does sound like he wanted to both take some money out AND contribute less, now that I've read it for a sixth time.

OP said this:

This 401(k) was from my first two jobs, early in my career. I have it invested with Vanguard, and literally play around with it.

To me that means he's been letting it ride with no contributions and playing around with the investments. Could be wrong. Can you contribute to a 401k after you leave the company?

 

[dareo]

I’ll take the contrarian view - pay it off.

Here’s why: risk tolerance and asset allocation are the bedrock of any financial plan. Most of the advice here is how to maximize returns for the OP’s cash flow and investment portfolio while completely ignoring his risk tolerance. Covered calls? Options? These are sophisticated tools that are not suitable for most investors. Sure, we can analyze rates of return and nuanced, effective, portfolio management. None of that matters.

Covered calls are simple, safe, conservative gains. Knowing about them and utilizing them is not common knowledge but i would liken it to having your oil filter part numbers, oil grades and quantities memorized when you walk into the parts store. And doing your own oil change with the parts.

I did not know anything about call options and had a fear of stocks because i might lose some money. I paid off my house’s 3.25% mortgage and missed out on what could have been at least 2x market returns. I ended up selling that house for a bigger one and i leveraged the second home and learned to trade/invest my own funds. Now its like i have a second income. Like many things in life it is worth learning how to do yourself and reaping the rewards.

Now if you went to change your own oil without the proper knowledge you might ruin your engine. Investing carelessly or without the proper knowledge can have the same result.

I just meant to come into this thread and say heck no don’t drain your retirement accounts for any reason, and got carried away.