27 Jun Taking 401(k) money to pay property taxes?

Q. My husband and I are 62 and 58 and we earn about $150,000 a year. We have a mortgage and pay our property taxes separately. Money has been tight — two kids in college — and we’ve had to pay our last two quarters of property taxes from our HELOC. We plan to downsize in the future, but right now my husband wants to take money from his 401(k) to pay the property taxes. Is this a good idea?
— Unsure

A. Ouch.

An outright withdrawal from your husband’s 401(k) if he’s not yet 59 1/2 would be a very expensive way to pay your property taxes.

Let’s take a closer look.

With your plans to sell your home and downsize in the near future, taking on some debt to help with a current cash flow crunch is not a bad idea, said Brian Power, a certified financial planner with Gateway Advisory, LLC in Westfield.

Hopefully when you sell your home, you’ll be able to lower your expenses enough to pay off the extra debt aggressively, he said.

We’re guessing your home equity line of credit (HELOC) is maxed out and that’s why you’re looking at the 401(k) for funding.

If you’re talking about a 401(k) loan, Power said, it could be a good option because it’s a quick turnaround to secure the loan and you will be paying back the interest to yourself.

But there are downsides.

The loan amount would be taken from the investments in your 401(k), so if those investments continue to grow, you’ll have the lost opportunity of that investment gain, he said.

“You also should gauge how secure your job is before taking a 401(k) loan,” Power said. “If you take the 401(k) loan and then lose your job, the loan amount might become a distribution on which you’ll have to pay taxes and possibly a penalty if the owner of the 401(k) is under the age of 59 1/2.”

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This post was first published in June 2017.