[{"@context":"https:\/\/schema.org\/","@type":"BlogPosting","@id":"https:\/\/www.amorusolaw.com\/blog\/why-you-should-not-use-401k-funds-to-pay-a-mortgage-new-york-ny-white-plains-ny\/#BlogPosting","mainEntityOfPage":"https:\/\/www.amorusolaw.com\/blog\/why-you-should-not-use-401k-funds-to-pay-a-mortgage-new-york-ny-white-plains-ny\/","headline":"Why You Should Not Use 401(k) Funds to Pay A Mortgage","name":"Why You Should Not Use 401(k) Funds to Pay A Mortgage","description":"\u201cWhen it comes to your money, be careful who you listen to. Taking advice from an uninformed person can cost you dearly.\u201d We call it \u201cthe brother-in-law\u201d effect. Most families have a brother-in-law who likes to think he knows everything, and he\u2019s more than happy to share his wealth of knowledge. Trouble is, most of […]","datePublished":"2019-11-01","dateModified":"2023-07-29","author":{"@type":"Person","@id":"https:\/\/www.amorusolaw.com\/blog\/author\/amorusolaw\/#Person","name":"Amoruso & Amoruso, LLP","url":"https:\/\/www.amorusolaw.com\/blog\/author\/amorusolaw\/","identifier":5,"image":{"@type":"ImageObject","@id":"https:\/\/secure.gravatar.com\/avatar\/12de032c04195e9c39a06a6d6eea182f7b4fa655c20e245f8094a244b5cdd0cb?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/12de032c04195e9c39a06a6d6eea182f7b4fa655c20e245f8094a244b5cdd0cb?s=96&d=mm&r=g","height":96,"width":96}},"publisher":{"@type":"Organization","name":"Amoruso & Amoruso, LLP","logo":{"@type":"ImageObject","@id":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/07\/amoruso-logo.svg","url":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/07\/amoruso-logo.svg","width":0,"height":0}},"image":{"@type":"ImageObject","@id":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/04\/6a01901dd0a082970b0240a495db23.jpg","url":"https:\/\/www.amorusolaw.com\/wp-content\/uploads\/2023\/04\/6a01901dd0a082970b0240a495db23.jpg","height":600,"width":900},"url":"https:\/\/www.amorusolaw.com\/blog\/why-you-should-not-use-401k-funds-to-pay-a-mortgage-new-york-ny-white-plains-ny\/","about":["401(k)","Mortgage","Retirement Income","Roth IRA \/ Roth Conversions","Tax Planning"],"wordCount":570,"keywords":["401(k)","IRA","Mortgage","Retirement Income","Roth","Tax Planning"],"articleBody":"\u201cWhen it comes to your money, be careful who you listen to. Taking advice from an uninformed person can cost you dearly.\u201dWe call it \u201cthe brother-in-law\u201d effect. Most families have a brother-in-law who likes to think he knows everything, and he\u2019s more than happy to share his wealth of knowledge. Trouble is, most of what he knows is wrong. A 60-year-old woman was told that she could use her 401(k) or IRA funds to pay off her mortgage and never have to pay any taxes, or not until she sold her home. This, says The Washington Post\u2019s article “Sorry, you can\u2019t escape income taxes by using 401(k) funds to pay off your mortgage“, is a perfect example of someone giving really, seriously, bad information.Let\u2019s start by clarifying how 401(k) and IRA plans work. With a traditional 401(k), contributions are made on a pretax basis. Income taxes are then due on both contributions and earnings, when distributions are taken. There is a 10% tax penalty, if the money is taken out before the account owner reaches age 59\u00bd.Depending on the person\u2019s income, contributions to a traditional IRA may be deductible from taxable income. Income taxes aren\u2019t due, until the money is withdrawn. With a Roth 401(k), contributions are made after taxes have been paid, so there are no income taxes due when money is withdrawn.Is there a loophole for mortgages? The short answer is no.There are relief provisions for the 10% additional tax, but since this person is past the 59.5 threshold, that is not an issue in the situation described above. Distributions from a Roth IRA or a Roth 401(k) are different, but even then, there wouldn\u2019t be anything special about the distributions being used to pay a mortgage.While you might not incur a penalty because of the age issue, any distributions would be subject to income tax. If the money has already been taken out of the IRA, the woman may have a 60-day window to put the money back in the account without being taxed\u2014unless she has already used this rollover treatment within the last 365 days.There is a special provision for first-time home buyers under 59.5 to use IRA money to avoid the 10% early withdrawal penalty, but that doesn\u2019t apply here.Using retirement funds to pay off or pay down a mortgage requires a careful analysis of the costs, in terms of penalties, taxes, and future costs.One potentially compelling reason would be a senior who has more than enough money saved for retirement and simply wishes to retire debt-free. Another would be a homeowner who is in a low-income tax bracket but will also be taking the standard deduction each year. If that person is paying interest on a 4.5 percent mortgage without receiving any tax benefits, then it could make sense to withdraw money from an IRA and pay off the mortgage. However, the withdrawal will be treated as income, so that needs to be part of the analysis.Generally speaking, the best use for retirement money is retirement. Keeping accounts intact for use later in life while enjoying tax-deferred growth is the real reason for these accounts.Reference: The Washington Post (October 30, 2019) “Sorry, you can\u2019t escape income taxes by using 401(k) funds to pay off your mortgage“For more information on tax planning, asset preservation and estate planning, please visit my estate planning website."},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Blog","item":"https:\/\/www.amorusolaw.com\/blog\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Why You Should Not Use 401(k) Funds to Pay A Mortgage","item":"https:\/\/www.amorusolaw.com\/blog\/why-you-should-not-use-401k-funds-to-pay-a-mortgage-new-york-ny-white-plains-ny\/#breadcrumbitem"}]}]