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We had a conversation at work today, as we do many days, about our future retirement as most of us are 2-5 years away from retiring. One thing someone asked was if it would be a good idea to use money (about $50,000 out of a $250,000 401k) to make up the difference in the money needed to purchase a house where they want to move to. This is money taken after they retire, not before retirement as a loan to be paid back. Is it better to be taxed on that amount when you withdraw it, or is it better to take out a mortgage for that amount. Some argue that they would take out a mortgage and claim the interest etc. on taxes. Others argue that they had rather take a hit tax wise rather than pay all the interest on a mortgage. When you first retire can you even take out a big lump sum like that on your 401K and then not take anything else for a few years if you don't need to?
No way am I starting over with move and a mortgage after I retire. Hell my house will be paid off a few short years after that and I am happy where I live.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Let the facts / statistics guide you.
Do the math, run tax and future earning scenarios.
I will die with a mortgage. (no lost sleep over that, the Mortgaged money is spinning off excellent income)
401k (a taxable distribution) will not be used for paying down my personal mortgage. (during my short remainder of lifetime)
A few previous 401ks have already been converted (when I retired 10 + yrs ago) to IRAs which hold LLC which owns income properties (can buy / sell / rent / trade properties... no 'realized gains' / taxes unless the IRA LLC takes a distribution).
Some funds remain in 401ks for it's better asset protection (better than an IRA) and excellent investment choices abound and fees are very low.
When I get closer to age 65 or 70 my priorities may change.
IRAs, 401k's, retirement accts have grown 12 - 17% annually Personal residence... I don't consider an asset, even tho the tax assessor thinks it is.
(Very high valuation growth area, (Federally restricted zone similar to National Park, no new homes allowed) and has increased 10x in valuation over my cost basis, but that is not very much over a period of 25 yrs)
Personal Residence looks like a Liability on my balance sheet (roof, maint, cleaning, taxes, insurance... income (?)... only IF you sell it... then you still may need a place to LIVE... nothing gained)
We had a conversation at work today, as we do many days, about our future retirement as most of us are 2-5 years away from retiring. One thing someone asked was if it would be a good idea to use money (about $50,000 out of a $250,000 401k) to make up the difference in the money needed to purchase a house where they want to move to. This is money taken after they retire, not before retirement as a loan to be paid back. Is it better to be taxed on that amount when you withdraw it, or is it better to take out a mortgage for that amount. Some argue that they would take out a mortgage and claim the interest etc. on taxes. Others argue that they had rather take a hit tax wise rather than pay all the interest on a mortgage. When you first retire can you even take out a big lump sum like that on your 401K and then not take anything else for a few years if you don't need to?
BLUF - no that is not a good idea. You are still working if you wish to be done with the mortgage pay it off out of current income.
Quote:
Originally Posted by rjm1cc
Not knowing the retirement budget 250,000 is not enough to take 50,000 out of at the beginning of retirement.
Do the mortgage and get the mortgage approved while you are still working. This is important.
Do you mean pay the mortgage off while they are still working? I hope so. I am not sure what else you could mean by this.
Well you have got advice marid. I am not sure it is good advice. Yes you can take out a lump sum and do exactly as they said. You can pay the mortgage off or buy a new car or take a long trip someplace. Does that mean it is a good idea? Maybe but maybe not. Everything depends on your income in retirement. Do you have pensions? Did you inherit an estate? Are you planning a move in retirement? What income will you have in retirement?
Your post hints at stuff but there is really nothing to grab hold of and assist with the exception of the mortgage. As intriguing as it sounds paying the mortgage off with a large cash withdrawal from 401k is not good. First off when you withdraw for your 50k mortgage payoff add another 5k to pay the taxes on it. now instead of 200k you are left with 195k and while those numbers are close everything depends on the type of investments.
BLUF - no that is not a good idea. You are still working if you wish to be done with the mortgage pay it off out of current income.
Do you mean pay the mortgage off while they are still working? I hope so. I am not sure what else you could mean by this.
Well you have got advice marid. I am not sure it is good advice. Yes you can take out a lump sum and do exactly as they said. You can pay the mortgage off or buy a new car or take a long trip someplace. Does that mean it is a good idea? Maybe but maybe not. Everything depends on your income in retirement. Do you have pensions? Did you inherit an estate? Are you planning a move in retirement? What income will you have in retirement?
Your post hints at stuff but there is really nothing to grab hold of and assist with the exception of the mortgage. As intriguing as it sounds paying the mortgage off with a large cash withdrawal from 401k is not good. First off when you withdraw for your 50k mortgage payoff add another 5k to pay the taxes on it. now instead of 200k you are left with 195k and while those numbers are close everything depends on the type of investments.
I am saying that they do not have enough saved for retirement (based on info given) and they should not take money out of the 401k to pay off mortgage.
We had a conversation at work today, as we do many days, about our future retirement as most of us are 2-5 years away from retiring. One thing someone asked was if it would be a good idea to use money (about $50,000 out of a $250,000 401k) to make up the difference in the money needed to purchase a house where they want to move to. This is money taken after they retire, not before retirement as a loan to be paid back. Is it better to be taxed on that amount when you withdraw it, or is it better to take out a mortgage for that amount. Some argue that they would take out a mortgage and claim the interest etc. on taxes. Others argue that they had rather take a hit tax wise rather than pay all the interest on a mortgage. When you first retire can you even take out a big lump sum like that on your 401K and then not take anything else for a few years if you don't need to?
That is a big chunk out of that modest 401k balance. But, is there a pension? If the 401k money is just gravy, then it doesn't matter much.
If there's no pension and that 250k is all there is, goodness no.
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