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Mortgage Payoff Question – Thrift Savings Plan

 

Q: I was referred to you by the Clark Howard team. I owe about $122,000 on my 4.5 Mortgage. My payments are about $1400, but I’ve been sending in $2000. I have a TSP retirement account with about $165,000 in it. Should I pay off the mortgage with the TSP?

A: The answer to this question depends on much more information that you have provided to us, but as a general rule of thumb, I would find it very hard to believe that it makes sense to pay off your mortgage with an asset that you would have to pay ORDINARY INCOME tax on to do so. Keep in mind that you have never paid income taxes on the TSP plan and therefore you would be subject to ordinary income tax on that withdrawal. This would likely be at rates in excess of 25%. You should consult a CPA or qualified tax professional regarding this.


 

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