If i take money from my 401k to pay off my mortgage, how will it be taxed ?

Question

If i take money from my 401k to pay off my mortgage, how will it be taxed ?

Answer 1

You have no tax benefits from paying off your mortgage in terms of 401k cash-outs. It's only first home purchases. The purchase has already now been made. So whatever taxes, capital gains, and fees you would incur for withdrawing money is what you would have to pay.

Answer 2

You will pay regular income taxes (10%-35%) plus a 10% penalty plus state taxes if applicable.  There are no exceptions to paying tax on a 401k withdrawal and paying off your mortgage is not one of the exceptions to the 10% penalty.

Generally, doing this would be a very bad idea.

Answer 3

You'll have to pay income tax on that money as if it were regular earned income, PLUS you'll have to pay a ten percent early withdrawal penalty.

Answer 4

It's fully taxable as ordinary income.  And if you are under age 59 1/2 when you take the distribution there is a 10% penalty on top of that.  Lastly, if you are still employed by the sponsoring employer you'll probably have to quit your job to cash out the 401(k) as this is not one of the special circumstances that would allow an in-service distribution.