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Withdrawing from 401K to pay mortgage

By Terry Savage on June 27, 2020 | Housing / Real Estate

My husband and I have been married for 20 years. He got laid off in Dec 2019. He had a job lined up, but Covid 19 killed it. I can support most of the family expenses on my income alone if I didn’t have to pay a mortgage. My husband wants to cash out his 401K to pay off the mortgage. He is 50 and I am 45. I don’t think that is a good idea. I feel the penalties are not worth it. He says we are losing more money in interest and the 401K is not making any money. Is there anything in the CARES act that can help us?

Terry Says

I understand the panic in your question. First, there IS something in the Cares act for you. If you have a federally guaranteed mortgage, you can apply for forbearance. Contact your servicer immediately. It was just announced that nearly 10 percent of mortgages are now in forbearance, so you’re not alone!
Here’s a link to all the info you need before you contact your mortgage servicer:

You are right, of course, not to dig into his 40l(k) unless as an absolute last resort. They have waived the 10% early withdrawal penalty (for people under 59-1/2) but he would still owe taxes on the withdrawal. And would miss out on all future growth tax-deferred inside the plan. BUT, he should look at his investments inside the plan, and now that the market has rebounded, maybe he should move at least half into the most conservative, stable value fund inside the plan.

And finally, have hope. This isn’t going to last forever! There will be jobs — maybe not the old jobs, but real opportunities in the future. He is only 50 — plenty of time to start a new life. So he should be trying to look ahead to were the opportunities will open up.

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