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Well after all of the contimplation, I got the word back from my CPA. The IRA can be raided (if that word works) for a grand total of $10K with out a penalty. There are alot of exclusion with regaurds to the IRA that can get you out of the 12.5% penalty. The 401k can’t be touched. All penalties apply to the 401k regaurdless of the sob story. Though I can borrow from the 401k, it wouldn’t make sence borrowing from myself when I can barrow somebody elses $ in the form of a mortgage.

If some one really wanted to, they could fold the 401k into an IRA (depending on your employers rules) and then raid the IRA for the wopping $10k. Bottom line it wouldn’t work like I had hoped for me or 90% of the population.

With reguard to the post above. I figure my tax bracket will be 30%+ at 60yrs of age (depending on how well the politicians learn to rape us in 30yrs), just like it is at 29yrs of age. The bonus would be the fact that my $200-$300k that I had in 2008 would be wrapped up into an asset that wasn’t lost in the 2009 recession (obviously I don’t know the dates but the point is valid). I’m thinking home prices will lead the loss, followed by the stock market. Essentially selling high (stock/401k), to buy low (home). I’m a bit worried about loosing my investment like I did in the tech bust.

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You guys have given more than a couple of things to consider, and I feel a little bad pulling more data w/o going over the advice I recieved on the forum over the weekend. Give me a week and I’ll consider each sinario I’ve already been given.

Here’s the thing. The article caught my interest. I think the #’s are wrong, but I’m not so hot with a mortgage calculator to be totally certain.

Buisnessweek calculates the intrest “earned” over the years if they were to invest it in the stock market, but I didn’t see where they calculated the cost of mortgage, or the “loss” in the first senario. Right off the bat, if it cost me 6% in mortgage intrest, I would HAVE to make 6% in the market to be a wash? Add the tax break for the mortgage intrest, and subtract the same amount I would pay in additional income from the investment and I’m still at a wash, maybe 3/4 of a % in the black? Now my head hurts? That’s a whole lot of stuff to accomplish for a .75% spread? What about the points up front to generate the mortgage and the small fee I pay to vanguard to hold my 401k? No fee’s were calculated?

Who’s good with a mortgage calculator and wants to proof the Article?

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Pay Off The House? Not So Fast

It may be smarter to invest the extra money instead of eliminating your mortgage

If you ask yourself whether you should pay off the mortgage before you retire, your first impulse may be to say: “Why not?” Many people have an instinctive desire to own the house free and clear before they stop working, figuring the absence of a monthly mortgage payment will help relieve the pressure of living on a reduced income.

But prepaying your mortgage may not be the savviest move, particularly from a tax standpoint. This is especially true when faced with the choice between fully funding a tax-deferred 401(k) or adding to your mortgage payment each month. It even applies when the alternative is to invest more in a taxable account.

The reasons to channel the money into retirement savings are clear. Every dollar you sock away in a 401(k), individual retirement account, or other tax-deferred plan saves taxes now and lets your money grow tax-free over the long term. Taxes come due only when you withdraw, usually when your income and tax rate are lower.

TAX SAVINGS
Take the case of a 50-year-old couple in the 33% marginal tax bracket who want to retire in 10 years. They have $400,000 left on their 30-year, 6% mortgage, and each is eligible to contribute $20,500 a year to their 401(k)s. Karen Folk, a financial planner in Urbana, Ill., calculated the impact of putting $41,000 a year into their 401(k)s vs. diverting it to pay the mortgage.

In the first scenario, the couple maxes out the 401(k)s. After 10 years, even earning a modest 6% return, the two accounts would accumulate $559,922. With an 8% return, the accounts would gain about $625,066. That’s more than enough, even after taxes, to pay off the remaining mortgage debt of about $175,000. In addition, the couple would have saved nearly $200,000 in taxes–$59,000 from the mortgage interest deduction and a deferred amount of more than $135,000 because of the 401(k) contributions.

Alternatively, if they put the entire $20,500 each into prepayments, the mortgage would be paid off in less than six years, leaving them just four years to pay the full $41,000 into their 401(k). Under this scenario, they end up with a paid-off mortgage and $385,000, if the 401(k) return is 6%; $402,000, if the return is 8%. Tax savings from the mortgage interest deduction and the deferred 401(k) contributions come to about $81,000, less than half that saved by putting all the money into 401(k)s.

Even if you’re already maxing out retirement account contributions, investing extra money in a taxable account may be smarter. After JPaul Dixon, 38, a vice-president at insurance broker Hylant Group in Ann Arbor, Mich., made a $110,000 profit on the sale of his home, he thought he could put more money into a new $435,000 house and therefore pay it off sooner. But his adviser showed Dixon that he’d benefit more by putting only 20% down and investing the $110,000. At an annual return of 8% over 20 years, Dixon would end up with $512,705, more than enough to pay off the balance on the $348,000 mortgage he just took on.

You should also keep the mortgage if a big chunk of your payment is tax- deductible interest. Frank Moore, Dixon’s financial planner, says the aftertax cost of a 6% mortgage is about 4% for taxpayers in the 33% bracket. If you can earn more than 4% after tax, you’re better off not prepaying the mortgage.

Of course, if you don’t think you’ll have the discipline to invest the money, or if you’re close to the end of the mortgage anyway and the tax benefits have dwindled, you just might pay it off. And don’t discount the emotional aspect of your decision, says J. Steven Cowen, a financial planner in La Jolla, Calif. Knowing that his own business could face a downturn at any time, Cowen and his wife decided to kick in an additional $1,000 a month to mortgage payments. Their desire to stay in their house for the rest of their lives was reason enough.

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Are any of these the article from newsweek?

http://www.keepmedia.com/pubs/Newsweek/2006/10/23/1905489

http://www.keepmedia.com/pubs/Newsweek/2005/01/17/702204

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Penalties avoided:

There is a first time home buyer exclusion that would spare us from the 10% penalty of yanking the retirement funds, but I’d still be paying 30%+ in income tax that year. (I actually ran some #’s the last couple of yrs and decided it was best to have the wife stay at home and help full time with our start up. Her whole income was going towards paying our income tax for the year by working outside the home. She wasn’t to upset about the dilemma… Basically 30% isn’t anything new, but we could avoid it if we’re in a lower income tax bracket when we’re 60 and pull the 401k then.)

Return on Investments in the market may be bleak:

I feel the stock market is ready for a down turn. Along with high p/e ratio over all, I feel the market has another debt to pay. Boomers are soon to be retiring in a big wave 3-10 yrs out, and their going to be pulling their retirement funds to live on. This is going to be a huge tax on the market when you guys begin to collect on your earnings. I’m hard pressed to find a safe haven for my $. This pushes me to invest in a safe bet like paying off the mortgage and saving 5-7% in interest guaranteed. Essentially a 5-7% risk free return.

Loss of potential gain if the market changes:

If I have the $ wrapped up in the house, it would be very ill liquid if I the stock market took a big upswing. But, now that I wrote that, I realize I’m a 1st mortgage/Refi away from liquidity. Boy that sounds stupid. Take $ out of my home to play the market?

Emotional return:

Our first House warming party AND mortgage burning party on the same day. OOH the dream. I could consider doing something else with life at 33. No more employment with the main goal of maximizing income.

Employment free of worry with the possibility of a better quality of life:

I honestly feel I may be able to make more doing something else but I don’t want to risk my income to find out. I think I could do it in a field that I have a passion for. W/O a debt load I could have the luxury of a long leave of absence in the hopes of coming up with “something better.” It sound a bit “dreamy” but I think I could find a way to “work smarter not harder” if I had the time to play with a couple of ideas. If nothing stuck in a year I wouldn’t have to worry about a year of lost earnings.

Give me some other insights, or tell me to quit bragging and go away…

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