Ask Terry Questions Paying off mortgage early with taxable IRA/CD funds

Paying off mortgage early with taxable IRA/CD funds

By Terry Savage on November 25, 2018 | Financial Planning / Retirement

Would it be wise to pay off my $50,000 mortgage with my IRA/CD funds? I would save $5,100 per year in interest but would pay about $10, 000 in income tax. I do have a 401K that I will start to use once I retire in 1-2 years. With the change in standard deduction for 2018 none of my interest would be deductable, as if falls below the minimum. My current mortgage has a 3% interest rate and has 10 years left on it.

Terry Says

I’d be inclined to stick with the mortgage for two reasons.  First, that low interest rate is a real treasure (and the banks would be delighted if you pay it off, so they can re-lend the money to others at a much higher rate!)

Second, you have flexibility with your current retirement account. And, the money can continue to grow tax-deferred til you REALLY need it.

Why pay taxes to the government now?  I know it hurts to lose that tax deduction — but it doesn’t justify making a second bad decision.   The math is not obvious, but the money growing tax deferred is a benefit that’s hard to compute since you hope you can keep it growing for a long time.

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