“When it comes to your money, be careful who you listen to. Taking advice from an uninformed person can cost you dearly.”
We call it “the brother-in-law” effect. Most families have a brother-in-law who likes to think he knows everything, and he’s more than happy to share his wealth of knowledge. Trouble is, most of what he knows is wrong. A 60-year-old woman was told that she could use her 401(k) or IRA funds to pay off her mortgage and never have to pay any taxes, or not until she sold her home. This, says The Washington Post’s article “Sorry, you can’t escape income taxes by using 401(k) funds to pay off your mortgage,” is a perfect example of someone giving really, seriously, bad information.
Let’s start by clarifying how 401(k) and IRA plans work. With a traditional 401(k), contributions are made on a pretax basis. Income taxes are then due on both contributions and earnings, when distributions are taken. There is a 10% tax penalty if the money is taken out before the account owner reaches age 59�.
via blog.graberjohnson.com
