If the 401K was rolled into a roth ira first and you have enough to pay off your house, then took whatever money you were previously paying into your mortgage and paid it into your IRA, would this benefit you or hurt you in the long run.
figure mid to late 30's with $100,000 and 15-20 years left on the mortgage
(I am quite a few years away from this but curious if it would work to my favor when I get there.)
2007-10-04 04:23:52 · 5 answers · asked by ed L 1 in Business & Finance ➔ Personal Finance
NO, don't sacrifice your retirement to pay off your house. Besides you are able to deduct the mortgage interest off of your taxes each year. You don't want to eliminate that tax shelter while at the same time paying the penalties and taxes that would go along with converting your 401k to a Roth and taking the money out prior to turning 59.5.
If you were to take the money from your 401k, you would lose the compounding interest and market gain on the money you pulled out. You can only contribute a certain amount to your 401k and IRA each year and wouldn't be able to make up the difference quickly.
2007-10-04 04:34:42 · answer #1 · answered by dfrank04401 3 · 0⤊ 0⤋
You do not want to do this.
You will get killed from a tax perspective.
First off, on the 401K, you will get severely penalized for borrowing from it right out of the gate. In additon, the most growth in the 401K is due to compounding. Think about how long it took you to save what you have in there now. It will probably take just as long, again, to get back to that point (depending on market conditions, etc).
Secondly, when you pay off your house, you lose all of the tax writeoff benefits that go along with it.
What is your hurry to pay off the house now? If you are making your mortgage payments on-time, it is helping your credit.
2007-10-04 04:29:40 · answer #2 · answered by Stupid Flanders 7 · 0⤊ 0⤋
It would hurt you for two reasons. First, you will pay a substantial penalty when withdrawing your Roth IRA to payoff a mortgage. I believe you only get the exemption during the actual purchase of the home, not for repayment of the note.
But the real reason is the lost growth of funds. The value of a 401 program is that you get to collect interest on pretax dollars as well as compounded interest on each year's earnings. If you zero out the account, you may be able to catch up on contributions, but you will never catch up on the earnings. The value of your house will continue to grow whether it is paid off or not. However the growth of your retirement assets will tank if you withdraw.
2007-10-04 04:29:23 · answer #3 · answered by Jay P 7 · 1⤊ 0⤋
I would say leave your 401k alone. Investments tend to make more than what your paying on interest on your home. Also you would be losing a great deal on the compounding on the money in your 401k. You get to right off the mortgage interest another benefit. Just pay extra on your mortgage to help pay it off sooner.
2007-10-04 04:30:45 · answer #4 · answered by the_wayward1 4 · 0⤊ 0⤋
You really have to crunch the numbers yourself. I read an article in newsweek recently that shown when this one family crunched the numbers paying off his mortgage early actually cost him more money because he lose out on tax breaks etc.
2007-10-04 04:30:53 · answer #5 · answered by rurouni33569 4 · 0⤊ 0⤋