"Can My Retirement Savings Count as Income If I Am Not Taking Distributions Yet?"

Yes, on a purchase or a limited cash-out refinance, and the account has to stay untouched for it to work this way. Fannie Mae lets a lender divide your documented retirement assets by the number of months in the loan term and count the result as monthly qualifying income. Nothing is withdrawn to do it. The size of your down payment is what you plan around.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, licensed in fifteen states.

You are eighteen months from leaving the job, or you left it last year, and the savings did what they were supposed to do. The balance is healthy, and the income on last year's tax return is small, because you have not started drawing on any of it yet and you would rather not start early just to satisfy a lender. So the question is whether a mortgage application can see the balance at all, or whether it only sees the small numbers on the return.

It can see the balance. The rule is B3-3.4-06, Employment-Related Assets as Qualifying Income in the Fannie Mae Selling Guide, revised 03/04/2026 under Announcement SEL-2026-02. It has a shape worth understanding before you decide how much of your savings to spend at the closing table.

Which savings can be used this way, and which cannot?

Retirement accounts you can reach, and money that came out of a job.

The guide names two sources. The first is a 401(k), IRA, SEP or Keogh retirement account, and there is a condition attached to it. You are only considered to have unrestricted access to one of those accounts if you have, at the time the income is calculated, the unqualified and unlimited right to request a distribution of all the funds in it. A plan that will not release the full balance on request does not meet that test. Please read the plan document or ask the administrator directly, because a summary sentence on a website is not the plan's own language.

The second source is a non-self-employed severance package or a non-self-employed lump sum retirement package. Those get documented with a distribution letter from the employer, Form 1099-R, and the money has to be deposited into a verified asset account.

The list of what does not work is just as specific, and it is worth reading before you start counting. Fannie Mae names stock options, non-vested restricted stock, lawsuits, lottery winnings, proceeds from the sale of real estate, inheritance and divorce proceeds as non-employment-related assets, which means none of them qualify under this section. Virtual currency is not eligible either. Checking and savings accounts are generally not eligible, with one exception that matters: if the balance in that account came from an eligible employment-related asset, such as a severance package or a lump sum retirement distribution, it can be used.

Money that moved into a trust has its own timing rule. Where eligible employment-related assets were liquidated into a trust within twelve months of the application date, the income still gets calculated under this section. Trust income that has been paying out for years is a different question, and how trust and dividend income reaches a mortgage application covers that one.

What has to be true about the loan itself?

Three things, and it is worth working them out early.

The loan has to be a purchase or a limited cash-out refinance. A limited cash-out refinance pays off the existing loan and the closing costs on the new one without putting money in your pocket. A cash-out refinance is outside this section entirely, and so is a loan on an investment property, because the home has to be one you are going to live in or a second home. If you are still working out which of those two a purchase belongs in, the difference between a second home and an investment property settles it. The difference between a purchase, a refinance and a cash-out settles the other half.

The loan is capped at 70 percent of the value of the home, or 80 percent when the owner of the assets being used to qualify is at least 62 years old at the time of closing. In plain terms, that is a 30 percent down payment, or 20 percent once you reach 62. Where the account is jointly owned, all of the owners have to be clients on the loan, and the one whose income is being used has to be the one who is 62 or older at closing.

The assets also have to be owned individually by the client, or the co-owner has to be a co-client on the loan. A parent's account cannot qualify a child who is buying alone, and a spouse's account cannot be used unless that spouse is on the loan too.

How does the lender turn a balance into a monthly figure?

By subtracting three things from the balance, then dividing what is left by the number of months in the loan.

Fannie Mae calls the result Net Documented Assets. The lender starts with the eligible assets and takes out the penalty that would apply if the account were distributed in full at the time of the calculation. Then it takes out the funds being used for your down payment, your closing costs and your required reserves. Whatever remains is divided by the amortization term of the loan in months, which is 360 on a thirty-year loan. The result is the monthly income figure the file uses.

A penalty on a full distribution comes off first, and whether one applies to your account at your age is a question for your tax advisor rather than for me. The Selling Guide's own published example assumes a ten percent penalty on a $500,000 IRA, which leaves $450,000. It then subtracts $100,000 of funds needed for closing, leaving $350,000 of Net Documented Assets and a monthly income figure of $972.22.

Money spent at the closing comes out too, and that subtraction changes the planning. What you put toward the down payment, the closing costs and the required reserves leaves the account, so it also leaves the calculation and the qualifying income comes out lower. What counts as reserves and where they can come from is worth reading before you estimate that last piece, because reserves are money that has to still be there after everything else is paid.

One more condition applies to all of this. A retirement account can only be used this way when a distribution is not already set up, or when the distribution already set up is not enough to qualify on its own. If you have started taking regular payments, the file reads those as retirement income under a different section, and how retirement and Social Security income gets documented is the path for that.

What does this look like with numbers?

Numbers below are made up to show the mechanism. Yours will land somewhere else, and the point of the illustration is the direction things move rather than the figures themselves.

A client is 63 at closing, so the 80 percent ceiling applies. The documented IRA balance is $700,000, and the illustration assumes no early-distribution penalty applies at that age, which is a question for a tax advisor. The home is $520,000 and the loan is a thirty-year fixed, so the term is 360 months.

Twenty percent down

IRA balance, documented                   $700,000
Down payment                            (-) 104,000
Closing costs                             (-)  9,000
Required reserves                         (-) 11,000
                                        -----------
Net Documented Assets                     $576,000
Divided by 360 months                        / 360
                                        -----------
Monthly qualifying income                  $1,600
Loan amount                               $416,000

Now the same client, same home, with a larger down payment.

Thirty-five percent down

IRA balance, documented                   $700,000
Down payment                            (-) 182,000
Closing costs                             (-)  9,000
Required reserves                         (-) 11,000
                                        -----------
Net Documented Assets                     $498,000
Divided by 360 months                        / 360
                                        -----------
Monthly qualifying income                  $1,383
Loan amount                               $338,000

The bigger down payment cost about $217 a month of qualifying income and took $78,000 off the loan. Both sides of your debt-to-income ratio moved at once, the income down and the housing payment down, and which one moved further depends on the rate and the taxes and the insurance on that particular home. That arithmetic is worth running on your own numbers before you settle on a price range.

This monthly figure also joins whatever other qualifying income the file already has. Someone drawing a pension, or Social Security, or still earning part-time, is not choosing between those and this one.

What the file needs from you

The documentation list is short, and none of it is hard to gather.

For a retirement account, the file wants the most recent monthly, quarterly or annual statement, showing the account and what it is made up of. Statements age out, so a file that stays open for a few months will ask for a fresher one under the allowable-age rules in B1-1-03. The lender also needs evidence that the assets are liquid and available to you, which is where the plan's own language about distributions comes in.

For a severance or lump sum retirement package, the file wants the distribution letter from the employer, Form 1099-R, and proof that the money landed in a verified asset account.

There is no minimum history requirement in this section, so an account funded last year counts the same as one funded over thirty years. Income continuance does not have to be documented either, because the income is calculated from the loan's own terms rather than from a promise that payments will keep arriving. Continuance gates almost every other kind of income on a mortgage file, so it is fair to expect the question, and the guide has already answered it here.

Where this gets missed

Assuming the balance is the number. The qualifying income comes from what is left after the closing costs, the down payment and the reserves are taken out. A client who plans the purchase around the full balance is working from a figure the file will never use.

Starting distributions early to look better on paper. Once a distribution is set up, the file usually reads the income under the retirement-income section instead, and the amount being paid may be smaller than what this calculation would have produced. Please ask the question before you change anything about the account.

Pulling money out for the down payment without running the math first. A 401(k) loan or a withdrawal for the down payment has its own consequences, and here it carries one more: the dollars you move out reduce the assets the income is calculated from.

Expecting it to work on a rental. The home has to be one you are going to live in, or a second home. An investment property purchase is a different conversation with a different income path.

Counting an account somebody else owns. If the account is in one name and that person is not on the loan, it cannot be used here.

What to do before you shop for a home

You'll want to start with the plan administrator, because the answer there decides whether any of the rest applies. Please ask whether you have the unqualified and unlimited right to request a distribution of the entire balance today. If the answer is yes you are inside this section, and if it is no the file goes toward a different income path, which is better to find out now than after you have written an offer.

Then, when you're ready, please provide the most recent statement for every account you would want counted, all pages, even if the last page is intentionally left blank. If part of the money arrived as a severance or a lump sum distribution, the 1099-R and the deposit record belong in the same folder.

Then it is worth deciding how much cash you actually want to bring to the closing, knowing that the amount changes the qualifying income and the loan size at the same time. That one is easier to settle when you can see both numbers side by side.

From there you can get pre-approved with the accounts and the documents actually reviewed rather than estimated, and choose the option that works best for you. That selection can change as the file comes together.

Common questions

Do I have to start taking money out of my retirement account to use it as income?

No. The calculation is built from the documented balance and the length of the loan, and no distribution is required. What the guide requires is that you have the unqualified and unlimited right to request a distribution of the whole balance, which is a matter of what the plan allows rather than what you do. If a distribution is already set up and is large enough to qualify on its own, the file uses that instead, under the retirement-income rules rather than this section.

Can I use a checking or savings account balance this way?

Generally no. Checking and savings accounts are not eligible employment-related assets on their own. There is one exception, and it turns on where the balance came from: if the money in that account arrived from an eligible employment-related asset, such as a severance package or a lump sum retirement distribution, it can be used. The distribution letter and the deposit record are what make that case.

Does this work on a cash-out refinance or on a rental property?

No on both. Fannie Mae limits this income path to a purchase or a limited cash-out refinance, which is the kind that pays off your existing loan and the closing costs without handing you money. The home also has to be one you are going to live in, or a second home. A cash-out refinance, or any loan on an investment property, has to qualify on income documented some other way.

My spouse owns the retirement account and would rather not be on the loan. Can we still use it?

Not under this section. The assets have to be owned individually by the client using them, or the co-owner has to be a co-client on the loan. Where the account is jointly owned, every owner has to be on the loan. If you are relying on the 80 percent tier, the person whose income is being calculated also has to be the one who is at least 62 at closing. It is worth talking through, because putting a spouse on the loan changes the credit and debt picture in both directions.

Does a bigger down payment help or hurt when I qualify this way?

It does both, which is why it is worth working through rather than deciding by habit. Money spent on the down payment, closing costs and required reserves is subtracted before the income is calculated, so a larger down payment produces a smaller monthly income figure. It also produces a smaller loan and a smaller housing payment. Your debt-to-income ratio depends on both numbers, and the only way to know which direction is better on a particular home is to price both versions.

How long do I need to have had the account before it counts?

There is no minimum history requirement in this section. An account opened recently and funded by a lump sum from an employer counts the same way as one you have contributed to for decades, as long as the source is eligible and the documentation is there. What the file looks at is what the account is, who owns it, whether you can reach the whole balance, and what the most recent statement says.