I've read though many threads and off-site articles regarding the advantages/disadvantages of paying off your mortgage, but I think I might have a situation that seems kind of pro-payoff at this point, maybe?
Current mortgage is sitting at about $60K, refi-ed last year to 3.75%
I have enough cash to completely wipe this out now. Was planning on rolling all of it into our existing taxable account, but started thinking about the mortgage aspect...
Up until last year, I have never been able to take any tax benefit to the mortgage interest (too low an amount to make it worth itemizing) but we had some big medical expenditures for 2012 and will also have in our 2013 taxes so it did get counted in, but after that, back to not being a factor.
I do not currently have my 401K maxxed out (it's roughly $9K/yr now), and planned to up my contribution to get it in the 12K/yr neighborhood this next change period.
Both husband and I have Roth IRAs maxed out, and I'll be pulling each year from our taxable account to fund the Roths to the max from here on out. (nice little back door tax sheltering, but it's only 11K/yr allowed, darn it)
We're currently living off of a portion of my salary, banking my husband's entire salary into savings, and a portion of my salary is funding a 401K and some savings. There are absolutely no issues with cash flow - other than we need to stop letting it sit in a crappy savings account earning practically nothing.
So what I've been playing around with is the idea that I could go ahead and pay off the mortgage at the end of this year, and set my 401K to the max contributions ($17.5K/yr). Not paying a mortgage payment would allow me to max my 401K easily and reduce our taxable salary WAY down (we're currently on the high side of the 15% bracket, but there is a chance that soon to come raises and distributions I'm required to take from an inherited account will push us into a higher bracket).
I know that investing the cash into a taxable account should technically earn better than the 3.75% we'd save, but my current taxable account is nearing 200K and that's not counting the large influx of cash I'm soon to be adding, which just adds more to the tax liability - whereas pushing the 401K to the max would allow me to shelter more money in a tax advantaged account and reduce our tax bill at the same time. And hey, no mortgage, so that make us 100% debt free.
Am I missing something here?