The Rds of your 2N7000 when Q1 is in cutoff should be ~1.5~2 ohms or perhaps a little more, which is a little high compared to power MOSFETS switching big currents, but your 20 mA indicator LED current will generate less than 1 mW inside M1 so even with its rather large 312.5°C/W Rth(j-a), you will raise junction temperature by a minuscule amount. You are fine.