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You are here: Experts > People/Relationships > Retirement Planning > Personal Investment & Financial Planning Q`s > 401k vs. Mortgage
Expert: John D Smith, CFP - 10/10/2008
Question
HI,
My husband & I are both 30, have three kids and work full time. We live in Michigan and are currently having difficulty with paying our mortgage. Togather we make about $50,000/year. We have around $20,000 combined in our 401k. The housing market is terrible in our area and many houses for sale in the area are not selling. Our house would require some fixing-up to sell effectivly (and we can't afford that).
My question is should we cash in our 401k's to be able to pay for about a year of the mortgage payments ($850/month) in the hopes that we will be better able to sell or keep current on payments after that year.
We have already reduced our 401k contribution to 2% of our pay in order to free up some more money.
Thanks for your help
Answer
Do you have the ability to borrow from your 401k vs taking the money out? If you can borrow then you are allowed to then pay yourself back over time with interest and you avoid paying a penalty for withdrawing prior to age 59 1/2 and you avoid paying taxes. In most instances, I do not advise clients to pull from 401k's or IRA's prior to retirement unless they have no other option. I hope this helps.
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