401k Withdrawal

EliasRizkallah — Wed, 11 Feb 2026 09:49:12 GMT

I'm thinking about taking money out of my 401k to start paying off my mortgage. I'm 62 yrs and I want to know what would be the tax consequences, In turbo tax, I calculate my tax liability for $100K would be 25K, Are there any other taxes and or penalties I need to take into account. Thank you.

Re: 401k Withdrawal

Opus 17 — Fri, 03 May 2024 17:26:20 GMT

You would also owe state income tax.

If you have a lump sum of income, you should make a lump sum payment of estimated taxes by the following deadline. You can pay electronically at www.irs.gov/payments. Don't forget to make an appropriate state estimated tax payment if you live in a state with an income tax.

Lump sum income in	estimated taxes due
Jan-March	April 15
April-May	June 15
June-Aug	Sept 15
Sept-Dec	Jan 15

Then, you may need to use the "annualized" method of calculating a penalty to show that you owe no penalty because you paid the correct tax in each quarter. If you withdraw money gradually, you could have 22% or so withholding on the money by the custodian instead of making your own payments.

Check your state -- some states exempt a portion of retirement income from state taxes.

As a financial matter, be aware that paying off a 5% mortgage is the equivalent of earning 5% on your investment. (And in fact, if you completely pay off the mortgage and lose the ability to deduct mortgage interest, paying off a 5% mortgage will be closer to earning 4% on the investment.). If you can earn more than 4-5% in the 401k with the same risk as owning your home, you may want to stick with the larger earnings and use the earnings to pay off the mortgage. (A fixed rate mortgage becomes cheaper over time because of inflation, too.)

Also as a financial matter, investing more money in your home may reduce the diversification of your investments, which may be a consideration.

topic 401k Withdrawal in Retirement tax questions

401k Withdrawal

Re: 401k Withdrawal