I am 60 yrs old disabled on social security disablity of 1100.00 before my medical deduction, I would like to close out my 401k and pay off my house , I want to know if the 20 percent taxes they take out is mostlikly all I will pay to the federal government and 10 percent to state of calif, I can barley afford my house payment and I do not want to loose it.
I receive 603.00 from a long term disablity payment right now which is not taxable.
Right now I have in 401 k $168,464.36 which $8,584.02 was after taxes so I won't have to pay any more on that amount at withdrawal

Since you are over 59 1/2 you can start withdrawals from your 401K. Why not just withdraw enough to cover your house payments? You can set up an annual withdrawal that will cover your mortgage payments for the year. Deposit that in a bank account and pay your monthly payments from that. This way the account continues to earn money and you minimzie your tax liabilty (you can withdraw enough to cover your taxes as well). This also gives you the mortgage interest deduction. Since your 401K is likely to earn a greater return then the net cost of your mortgage interest, you will using the money to your best advantage.

Scott:

To say that his 401K will earn more than the mortgage interest may NOT be valid. It depends in what the 401K is invested.

I have seen 401K accounts barely match inflation. This is espcially true for 401Ks that are invested heavily in company stock.

Further (assuming he is single), Target48 gets a standard deduction of $5,400 for 2008, plus a personal exemption of about $3,500, so the first $8,900 of his income is tax-free.

We need more information (other income sources, any other pensions, his marital status, his age, etc.) before we can really make any recommendations on how he should address this problem.