Retirees with $2.5 million want to pay off their $200K mortgage — but a hidden tax hit could cost them $60K

At first glance, paying off a mortgage with $200,000 or less on the loan left to pay seems to make good sense, and good math.

And why not? The age-old homeowner tradition of burning a paid-off mortgage is one of the biggest moments in adult life, and not having a monthly mortgage bill frees up cash in the household budget.

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Yet for retirees with a growing retirement investment portfolio and a home mortgage with a low interest rate, rushing to pay off the mortgage using investment cash has its pros and cons.

Consider Leslie, 57, and her husband Rick, 59, who want to use some of their $2.5 million investment account to pay off a $200,000 mortgage with a 4% interest rate. The couple also plan to retire, each by age 62.

With their golden years almost in reach, should they raid the investment portfolio or keep paying down the mortgage and leave their stocks, bonds and funds alone?