Alert
Close

AARP holds senators accountable for key bipartisan Medicare vote. Learn more

Highlights

Open

 

Contests and
Sweeps

You Could Choose Your Dream Vacation!

Hawaii, the Grand Canyon or an Alaskan Cruise! No purchase necessary. Ends May 31. See official rules.

Free Fun!

AARP Games - Play Now!

PROGRAMS & resources

Best Employers for Workers Over 50

Check out the winners list and latest news about this AARP recognition program.

Employer Resource Center

Attract and retain top talent in a changing workforce.

Your Own Business

Information for business owners, entrepreneurs and the self-employed.

webinars

Learn From the Experts

Sign up now for an upcoming webinar or find materials from a past session. 

Most Popular
Articles

Viewed

Should You Use Retirement Funds to Pay Off a Mortgage?

Taxes on 401(k) and 403(b) withdrawals can be costly

Q: I recently lost my job at age 60. Should I pay off my $95,000 mortgage with my 403(b) plan? It seems over the long haul I would save a lot of money. I will be going back to work part time in the near future.

–Carol, 61, Greenville, S.C.

 
A: Despite the allure of being mortgage free, I would recommend against using the money in your 403(b), a retirement account for non-profit workers that's similar to a 401(k), to pay off your mortgage in one fell swoop. Withdrawals from 403(b) and other retirement savings plans are almost always fully taxable.

Depending on your income tax bracket that means you'll need to withdraw around $130,000 from your 403(b) account in order to have enough money left over after taxes are paid to retire your $95,000 mortgage. That's a steep price to eliminate monthly payments to your home lender.

On the other hand, you don't want to spend a long time paying off your mortgage, particularly after you finally retire. Instead, you should consider making extra payments against your mortgage over the next several years while you'll have part-time income. You'll also benefit from tax deductions on the mortgage interest you pay.

As I've written before, extra mortgage payments can add up fast. Let's say that you have 20 years left on a $250,000, 30-year mortgage with an interest rate of 5.5 percent. Your principal and interest payment would be about $1,420 per month. By paying an extra $200 a month, the mortgage would be paid in full in 16 years instead of 20. An extra $400 a month would speed up the payoff time to 13.5 years.

All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser regarding your individual situation. Use of the information contained in this website is at the sole choice and risk of the reader.Back to Article

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

Jobs You Might Like

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

UPS Store membership discount aarp benefits

Members save 15% on eligible products/services, 5% on UPS shipping at The UPS Store®.

membership adt

Small business owners save 20% on new installation of any new ADT security system.

Woman holding smartphone in city, Google map tool

Members can find discounts on the go via the AARP® Member Advantages Offer Finder mobile app.

Member Benefits

Renew today! Members receive exclusive member benefits & affect social change.

Advance your skills. Transform your career.

Explore your learning possibilities.