401(k) or Retirement Funds

Using Retirement Funds in Your Mortgage Application

Resources > Mortgage Manual > Assets > 401(k) or Retirement Funds

Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for the down payment, closing costs, and reserves. The lender must verify the ownership of the account and confirm that the account is vested and allows withdrawals regardless of current employment status. – Fannie Mae

This section will cover all documents needed to support your 401(k).

Action Items: Determine if you are using your 401(k) or retirement funds for your closing. Collect required documentation. Upload documents to your Closing Tracker. 

What do we need?

  • Document regular and continued receipt of the income, as verified by one of the following
    • Letters from the organizations providing the income
    • Copies of retirement award letters
    • Copies of signed federal income tax returns for the last 2 years
    • IRS W-2 or 1099 forms
    • Proof of current receipt
  • If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application.
    • In addition, you must have unrestricted access without penalty to the accounts; and
  • If the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets.

Where can I find it?

  • If you have your tax returns easily accessible, just upload them to your Closing Tracker. If not, check out this IRS site where you can find information on how to access your tax returns.

Why do we need this?

  • Lenders are looking for income that is stable, predictable, likely to continue. That is why Fannie Mae requires 3 years of 401(k) reserves since the funds are only depleting. 
  • The documents required in this section demonstrate the free use of retirement funds, which is required by lenders.