NorthJersey.com | Ilyce Glink  | May 8, 2011

Q. How can we take money out of 401(k), pay off our mortgage and not pay taxes on it all if we do it all at the same time? Can any of it be deferred? The amount we'd want to take out is $105,000.

A. Unless you're in danger of losing your house, you generally shouldn't take money out of a 401(k) and use it to pay off a home loan.

Why? Because your money is growing inside your 401(k) at a faster rate than you're paying out for your loan. Also, your mortgage interest may be deductible if you itemize on your federal income tax return.

If you've recently refinanced, you're probably paying less than 5 percent for your mortgage. (I just refinanced to a 15-year at 3.75 percent.)

If you itemize, your net interest rate is somewhere around 3.5 to 4 percent. That's basically like free money, and over time you'll do a lot better by keeping the cash inside your 401(k).

Read More: http://www.northjersey.com/news/business/121457589_Do_not_touch_401_k_to_pay_off_mortgage_.html