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Asked 8/1/2009
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I have changed jobs and am wondering about using some of my 401k money to pay down my home loan. Is this advisable? I have changes jobs and am wondering if using some of this to pay down my home loan is advisable? Do I pay taxes then on the money I take out in this current year? |
Answer 1/1 - Submitted 8/1/2009
Using a 401(k) distribution to pay down a home mortgage is usually not a good idea. In addition to regular income tax, if you are under age 59 1/2 you get hit with a 10% tax penalty. You only want to consider this option if you are at risk of losing the house under foreclosure.
When you receive the distribution, there would be some tax withheld. It is seldom the correct amount. The distribution is reported on your tax return and the balance of the tax is paid at that time.
If your 401(k) is getting distributed to you because of the change in jobs, consider rolling it into an IRA. There would be no tax consequences to that move.
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