Home & Leisure

/

ArcaMax

Real Estate Matters: Couple considers tapping into 401(k) for mortgage payments

Ilyce Glink and Samuel J. Tamkin, Tribune Content Agency on

Q: My husband turns 65 next month, and his private medical disability of around $4,000 will end. We have a monthly mortgage of $2,600, and one child with two years left in college. I take home $2,300 a month. Our home is currently worth $1.2 million, close to downtown D.C. and a walkable metro stop.

Can we pay off our house by taking out $300,000 from his 401(k) retirement plan? He has an account balance of around $900,000 right now. We’re not ready to move, and I plan on working for the next 10 or so years. Once we move, we’re likely to move away from D.C. to a lower priced area several hours away.

A: You’re in a tough spot, and we understand why you’re worried. You have a large monthly mortgage payment and expenses that far outstrip the $2,300 you take home each month. You also plan on working for the next 10 years, and want to stay in your current home.

Let’s start with the disability payments. Your husband is currently receiving private medical disability payments that are scheduled to end when he turns 65. That’s what happens with Social Security disability payments. According to the Social Security Administration, any Social Security Disability Income (SSDI) payments you receive will end when you turn 65. At that point, your SSDI payments convert into retirement benefits, and should continue at the same amount as your SSDI payment.

Since you didn’t provide quite enough information in your email, we’ll give you some general guidance. The goal is for you to know what questions to ask so you can make a smart decision going forward.

Your husband has private medical disability payments of around $4,000 per month. He should, at age 65, be eligible for a Social Security retirement benefit. We don’t know what that amount would be, but you can call your local Social Security office to get more information about how much monthly income your husband is due.

 

If he is going to receive close to the $4,000 he is currently getting, then perhaps everything is going to be OK. But let’s assume he’s only going to get $2,500 per month. Then, you have a deficit of $1,500 to make up each month.

Next, let’s think about your costs. Are there any expenses you can cut back on? You should have your child borrow whatever they need in order to finish college. Or, perhaps they can apply for scholarships. Right now, paying anything out of pocket for them should be your last concern.

If you’ve refinanced your home in the last five or six years, or if it is your original loan, it’s likely your interest rate is less than 4%. If so, you should try to keep that loan and figure out a way to stay current on your payments. If that isn’t possible, and there is no other way for you to raise the extra $1,500 per month you need, then it’s time to look at your husband’s 401(k) plan.

Does the 401(k) plan allow loans? If it does, your husband may have to repay the funds within a specific period of time, usually five years. But often 401(k) loans are limited to individuals who are currently working at the company. Your husband hasn’t been working, so it’s unclear whether he’d be able to take advantage of a loan program.

...continued

swipe to next page
 

 

Comics

BC John Darkow Tom Stiglich Rose is Rose John Deering Scary Gary