[swalczewski]

How about if the purpose was to payoff a mortgage that still had about 20 years left? Looking at things, I'm guessing the interest owed on the mortgage might far outweigh the taxes we would get slapped with for early withdrawal. My wife and I have a large 401K and a lot of years left on our mortgage. We are also young.. This scenario might be present in our late 30's, early 40's. With no mortgage we can then start investing heavily in rebuilding our 401k. Thoughts on this logic? Finance is not our specialty so any insight would be appreciated! Thanks.

[ScottGem]

First, its not a good idea to piggyback your question on another thread. To avoid confusion your question has been moved to its own thread.

You are guessing incorrectly. First it depends on the interest rate on the mortgage. If the interest rate is very high, this might pay. But if its very low (as today's rates), then it is unlikely to pay. When you consider the tax deduction on the mortgage interest, the 10% withdrawal penalty and the loss of tax deferred accruals on your 401(k) investment this becomes a bad decision.

If your mortgage rate is high, refinance. With a high interest rate, you can probably refinance lowering your monthly payment AND cutting years off the term. Try refinancing for a 15 yr term.

[AtlantaTaxExpert]

ScottGem has it right. There are SO many better options than accessing your 401K.

You WANT a big 401K; the bigger, the better. The earlier you start saving for retirement, the bigger the fund will be when you actually DO retire.

[ebaines]

I will pile on here in full agreement with the answers already given, especially regarding refinancing versus using 401(k) funds. With interest rates for 30-year mortgages around 3-1/2 percent or so it doesn't make sense to pay 10% in penalties plus inciem taxxes in order to save 3-1/2% in interest expense. And it is definitely a good idea to build your retirement funds while you're young and let compunding over time work to your advantage. So keep the money in the 401(k) and refinance the mortgage to a lower interest rate if you can.