Heidi Without knowing your tax situation or personal assets and liabilities I am hesitant to answer this one. However, it sounds like you have enough income coming in if you are not drawing from your 401k so I would recommend gettting out of the car debt. Yes you will pay taxes but you do not need this debt in retirement and the car interest is not deductible. Check with your tax person to make sure the additonal withdrawal does not put you in a higher marginal tax bracket just to be safe. Good Luck! Mark Schreiber CPA
Assuming the following: 1. you are over 59 1/2 years old. 2. the amount won't push you into a higher tax bracket. 3. the interest on the car debt is higher than the expected return on your retirement plan assets. 4. you aren't going to run out and take another loan for something else...
Then it might be ok for you to use some of your retirement plan assets to pay off the debt.
To be exact, I guess you could be over 55 years old if this is specifically your employer plan.