Q. I'm 55 years old and was laid off from my job of 32 years in November. I am eligible to start receiving a $3,000-a-month pension. However, I still have a mortgage balance of $23,000 on my house. A financial advisor told me that I could take money from my 401(k) without the 10 percent penalty since I "retired" from my company at age 55. I believe it is referred to as the "Rule of 55.”

I have $27,000 remaining from my severance payment, but that is my only emergency fund at this time. I also intend to use the pension back pay which I will receive (about $12,000) to pay off existing debt.

Do I take money from my 401(k) to pay off the house, or should I just continue to pay the monthly mortgage expense along with all the other monthly bills until the house is paid off?

The monthly mortgage payment is $657, excluding property taxes and insurance. ---B. H., by email from Dallas

A. Yes, there is a “Rule of 55” that applies to 401(k) plans. If you are at least 55 when you leave your job (or when it leaves you), you can take withdrawals from the 401(k) plan without penalties. You will, of course, still have to pay income taxes on the withdrawn amount, but there will be no early withdrawal penalty.

For people who are at least 55 but less than 59 ½ this rule is important because it allows you to avoid penalties IF you keep your money in the 401(k) plan. If you do a rollover to an IRA, however, the only way you can take money out before age 59 ½ is by exercising another rule called 72(t). Rule 72(t) allows you to take money out before age 59 ½ IF you do it in a series of essentially equal payments over a specified period of time.

The bottom line for you and many others is that if you are 55 and have lost your job, it’s a good idea to figure out what money you’ll need, and when, before you think about rolling over to an IRA--- even if the cost of managing the IRA is lower than the cost of managing your 401(k).

In your case, that $657-a-month mortgage payment will be a big hit on your pension income, so you will improve your cash flow nicely by paying off the remaining $23,000 of debt. With $39,000 in cash outside of your 401(k) plan you can pay it off and still have a modest reserve fund of $16,000 without tapping your 401(k) money. That means you can pay off the mortgage without any consideration of what it will do to your income tax bill.

For 2009 a single person can have a total income of $43,300 and remain in the 15 percent tax bracket. (You can have taxable income up to $33,950 in the 15 percent bracket after a standard deduction of $5,700 and a personal exemption of $3,650.) As a consequence, you could take about $13,000 a year from your 401(k) and not owe more than 15 percent federal income tax on it.

That’s important to know because when your taxable income exceeds that amount, the additional money is taxed at 25 percent--- a big increase.

I don’t know how big your 401(k) balance is, or what your total cost of living is, but you might be more comfortable paying the mortgage off in two installments over two years by taking the money from the 401(k) plan rather than reducing that $39,000 cash fund.

Q. How does one apply this new real estate property tax deduction, either the $500 or $1,000, to the standard deduction? Just make it $11,900 instead of the $10,900 for married filing jointly? I haven't seen anything on how this really works. ---J.B., by email from Dallas

A. If you don’t itemize deductions but own a house, you simply add $500, if single, or $1,000, if married, to the standard deduction for 2008. That is the maximum amount you can add. If the real estate tax is less than $500 or $1,000, you add the lower amount. The standard deduction for your 2008 tax return is $5,450 single, $10,900 married. There is a bit more on this, but not much, in IRS publication 501, which you can download from its website, www.irs.gov.