I am 60 years old. I am a retired federal employee. My husband is 61 and planning to retire soon. We would like to withdraw 50 % of our thrift and 401K to pay off our mortgage. We know that we will have to pay a 20% tax on this money. Is the remaining 80% of our money also considered income and tax again upon rendering yearly taxes? What is the best way to do this?

First why do you want to do this ? What percent interest is the house loan, and how much do you owe. How old are both of you?

What percent profit has your retirement funds been earning.

When you take a withdrawal from your 401(k) the entire amount withdrawn is considered income. They will automatically withhold 20% for federal income taxes. Much like withholding of taxes from your paycheck, you should consider this a down payment on taxes but the actual tax bill can't be calculated until you file your tax return next year. Be aware that if the amount is significant it may push you into a higher tax bracket than you've been used to. Also be aware that depending on the state you live in you may also have to pay state income tax on the withdrawal. Typically they will not withhold anything for state income taxes, so be prepared to pay the full state tax when you file your state income tax return.

You mentioned withdrawing from "thrift" - do you mean a savings account? Interest on savings are reported each year and taxed as it is earned, so there is no tax on withdrawal from your savings account.

Since you get a tax deduction on the interest you pay on a mortgage, reducing your assets to pay off the mortgage is probably not the best idea.

As pointed out you don't pay 20% in taxes, 20% is withheld to apply towards your tax liabilty. So the hit on your savings coupled with the loss of tax deductions, is going to wind up costing you much more than you may save in interest.

I'm wondering what gave you the idea to do this.