401K VS Regular Account

I’m 62 and looking to retire in 3 years. I want to be able to buy a house for cash or at least put-down half when I retire. I’ve been selling off the mutual funds that I purchased over 20 years ago from my taxable account and putting the money into CDs paying 5%. A friend told me I should not touch my taxable account and that I should start pulling money out of my 401k. Any suggestions on which is best?

Don’t take financial advice from that friend. What you’re doing, while it may or may not be ideal, is far better than pulling money out of your 401k (if you are even allowed to do that, which you probably aren’t if the 401k is from your current employer).

Is there a reason you want to pay cash or at least half down? Why not just buy with a loan (now or when you retire), and make the payments by selling some of the mutual funds each month or year? It’s fairly likely you’d pay less tax that way (though it’s impossible to know without more information about your finances, and without knowing what the market will do).

Thanks for your response. The 401k has over a million dollars and it’s from a former employer. I have another million in my regular account. Houses where I want to buy are over 800K and the thought of a large mortgage when I retire scares me. I want to put as much down as possible to keep the mortgage low. With the stock market at record highs I started selling a little bit at a time. I now have 200K in a CD. I want to sell more that’s why I was wondering if I should pull from the 401k

non retirement money for the down payment then maybe a 15 year mortgage out of your taxable 401K money. The problem listing to Clark over the years is that he tells you how to save it but never tells you how to spend it.

If you use $400,000 to $800,000 for a house purchase, will your retirement income still be adequate for your retirement expenses?

Mutual funds from over 20 years ago likely have significant capital gains. Have you been doing the selling using Specific Identification to minimize the capital gains?

Taxes favor withdrawing from the brokerage account. All of a 401K withdrawal will be taxed at your income tax rate. Only the gains from a brokerage account are taxed and the taxation is for most individuals at the lower capital gains rate.

But the thought of having your savings decrease by that same amount doesn’t scare you? Money is fungible. You can pay off the mortgage at any time by selling your assets (and paying the taxes). You don’t have to do it in advance. In your case, since you’re still working, taking from the 401k is going to add income at your highest marginal tax rate or higher.