I'm fatally ill and that diagnosis is final and there's no doubt I am going to die long before retirement age. I'm married and we have two young children.
I have about one year's worth of salary saved up after contributing the maximum to my 401k for the last decade and a half of my life. Not a lot, about $60,000. I'm frugal, we live modest, but that money isn't doing anything for us right now. I figure if I withdraw all of it, that the government will take 50% worst case scenario. Best case, about 40%. Someone with more knowledge can drop the very specific amounts. Anyhow, the government isn't going to look at me and have pity for my condition or strategic planning. They will get their cut. So, should I take the loss and use the difference ~ $30,000 to get our mortgage down, so when I'm gone my spouse will have a lower payment or should I leave the money there so she and my children will have a lump sum (but still have to pay the taxes)?
As advice comes in, other thoughts come to mind, which may be important:
- I'm going to go through a period where I can no longer work before I pass away. During that time our household income will be about half of what it is now.
- Are there risks of leaving the money in or taking it out. For example, it is very probable that I'll be hospitalized for a while. Medications and doctor bills will probably accrue. Worst case scenario, bill collection companies will come knocking. So, is the money safer in retirement accounts or invested in our house? Would it be better to make my children the beneficiaries?
- If we refinance now, we can lock down a rate of 3.75% and using approximately 30,000 of the money while holding back the other half to pay the taxes and penalties will reduce our mortgage by an estimated $200 per month.