Should you use your 401k to pay off your mortgage? You may already know that there is a 10% penalty for early withdrawal, but a new bill proposed by Sen. Johnny Isakson and Rep. Tom Graves seeks to allow you to pull money out of your 401k to pay off or pay down your mortgage.
Here are some of the highlights:
· You can withdraw $50k or half the account value, whichever is less
· No 10% penalty
· You must use the funds to make mortgage payments within 120 days of receiving the funds
I’m thinking that some of my clients who have a second mortgage they would like to eliminate but don’t have the equity to refinance could benefit from this. It could also be a way to lower your monthly payment as well as lower interest rate.
If you would like to read the entire proposed bill, called the HOME Act of 2011 click on the previous link or call me at (615) 895-4265 and I’ll send you a copy.
Most financial experts are not in favor of raiding your 401k for the following reasons:
· Pulling money out of your 401k that is protected from creditors makes it vulnerable to loss if you eventually lose your home
· Anyone with a mortgage can withdraw money from their retirement account whether they really need or not
So, what do you think? Is this a good idea or is it just too risky to be playing with your 401k?