Dear Liz: Would it make sense to pay off a low-balance, refinanced mortgage at 3% using a portion of my wife’s 401(k)? Would that not be better than paying the mortgage off from my IRA? I am 70 and on Social Security. My wife still works, at least till her birthday in December. She will then be 70 as well and should qualify to maximize her Social Security payout.
Answer: It’s not clear how a withdrawal from one account would be “better” than the other, given your similar ages and the fact that either withdrawal would be taxable as income. The more appropriate question might be why you’re in such a rush to pay off this mortgage.
At this point, you’ve paid most of the interest on this loan and your payments are largely principal, so you won’t save much by paying the loan off early. If there’s a compelling reason to do so, then you may want to postpone the withdrawal until your wife retires and you’ll presumably be in a lower tax bracket. A tax pro can help with that projection.
You should be consulting a tax pro in any case, since required minimum withdrawals from most retirement accounts have to start at age 73 and you may need help managing that tax bill.
This week’s top story: Smart Money podcast on recession anxiety, and retirement savings vs. mortgage payoff. In other news: 5 tax tips for older adults, paying taxes for a bank bonus or interest, and how a tax extension can delay your business loan application.