The Quick Read: Usually 70% of the vested balance counts on the asset depletion path, at any age, through select programs in Lendmire’s wholesale network and subject to underwriting. That discounted amount is divided by 60 months to produce monthly qualifying income. On the separate asset qualifier path, a 401(k) counts at 90% under age 59½ and 100% at 59½ or older.
- Depletion path: retirement accounts count at 70%, versus cash and CDs at 100% and securities at 80%.
- Qualifier path: the 401(k) counts at 90% or 100%, depending on age, and the assets must cover the entire loan.
- Only vested money counts, and the lender’s own calculation governs.
- A borrower is qualified on one path at a time, so the two tables never blend.
- On a rental purchase financed with a DSCR loan, a 401(k) mostly matters as reserves, not income.
This is a consumer-mortgage topic for cash-heavy, income-light borrowers. Retirees, business sellers and people living off a portfolio usually fit best. Investors reading for rental financing should read the DSCR section near the end first.
What Does “Counts” Actually Mean?
Four different numbers get confused here. Keeping them apart answers most questions.
- The balance is what your statement shows.
- The eligible amount is the balance after the program’s percentage.
- The usable amount is what remains after deductions.
- The qualifying income is the usable amount divided by 60 months, on the depletion path.
There is no national percentage. No regulator sets one. Each program’s matrix decides, and across the wholesale network the treatment of retirement money varies by path and by age. That is why a single loan officer’s answer should never be treated as the market’s answer.
Two Paths, Two Different Answers
The same 401(k) is worth different amounts depending on the path. Name the path before quoting any figure.
| Factor | Asset qualifier path | Asset depletion path |
|---|---|---|
| What it does | Assets alone cover the whole loan | Assets become monthly income |
| 401(k) credit | 90% under 59½; 100% at 59½+ | 70% at any age |
| Cash and CDs | 100% | 100% |
| Securities | Brokerage at 100% | 80% |
| Income documented | None | Derived income runs through DTI |
| Divisor | Not used | 60 months |
Typical ceilings, subject to underwriting: on the qualifier path, up to 80% loan-to-value on a purchase and 75% on a refinance. On the depletion path, a principal residence or second home can reach 80% on a purchase or rate-and-term refinance and 60% on a cash-out. An investment property on that path tops out at 65% on a purchase or rate-and-term refinance and 60% on a cash-out.
How the Depletion Formula Works, Step by Step
The depletion path follows four steps. Each one is where a 401(k) can gain or lose value.
1. Confirm the vested balance. Unvested employer match does not count. Read the vested figure on your plan statement, not the headline total.
2. Apply the percentage. A 401(k) takes the 70% retirement haircut. Cash takes 100%. Securities take 80%.
3. Add the accounts together. Eligible amounts combine across account types.
4. Divide by 60 months. The result is monthly qualifying income, which must carry the housing payment and other debts through the debt-to-income test.
Here is an illustrative shape, not an offer. Say a borrower holds $1,500,000 in securities and $300,000 in cash. Securities at 80% contribute $1,200,000. Cash at 100% contributes $300,000. That is $1,500,000 usable, and divided by 60 months it becomes $25,000 of monthly qualifying income. The lender’s own calculation governs the real result.
A 401(k) follows the same arithmetic at 70%. Every dollar of 401(k) contributes seven-tenths of a dollar before the division. Cash would add roughly 43% more, since it counts at 100% rather than 70%.
The Qualifier Path: When the 401(k) Counts Almost in Full
The qualifier path asks a different question. Do your eligible assets equal or exceed the entire loan amount? If yes, no employment or income is documented. The lender’s ability-to-repay review rests on the assets.
Here the 401(k) is treated more generously. It counts at 90% under age 59½ and 100% at 59½ or older. Consider a borrower seeking an $800,000 loan who holds $330,000 in brokerage accounts, $300,000 in a 401(k) and $200,000 in savings. Brokerage counts at 100%, which is $330,000. Under 59½ the 401(k) counts at 90%, which is $270,000. Savings count at 100%, which is $200,000. The total is $800,000 of usable assets, enough to qualify on assets alone, subject to underwriting.
Two details matter. Seasoning is 60 days, with two months of statements for each qualifying account. Credit starts at a 600 minimum score. And the assets are fully documented. No income documentation never means no documentation.
Why Lenders Discount a 401(k) at All
The discount is a risk overlay, not a tax calculation. Still, the tax drag explains the logic. The IRS says the 10% additional tax applies to early distributions from qualified plans, including a 401(k), on the portion includible in gross income. A lender sees money that cannot be tapped cleanly without cost, so it counts less of it.
Age 59½ is the usual dividing line, because that is where penalty-free access generally begins. That is why the qualifier path steps from 90% to 100% at that age. The depletion path uses a flat 70% instead.
The IRS notes that traditional withdrawals are taxed as ordinary income, while qualified Roth distributions generally are not. Tax treatment varies; consult a qualified professional before relying on any of it.
What Makes a 401(k) Eligible?
A balance can be real and still not count. Lenders look for these conditions:
- Vested. Only the vested portion qualifies.
- In your name. The account must belong to the borrower.
- Accessible. Some plans restrict withdrawals while you are still employed, and a lender may want that access documented.
- Net of plan loans. An outstanding loan against the account reduces the usable balance.
- Not double-counted. Money used to generate depletion income generally cannot also be counted as reserves. Confirm this program by program.
Not eligible on the depletion path: custodial accounts, deferred compensation, escrow accounts, foreign funds, cash on hand, stock options, non-vested restricted stock units and funds from non-regulated financial companies. Cryptocurrency, precious metals and collectibles are not published as eligible on either path. The documented route is converting them to a seasoned cash balance in a regulated account, with the source reviewed.
Documentation and Seasoning
Both paths document the assets. The timing differs.
- Qualifier path: 60 days of seasoning and two months of statements for each qualifying account.
- Depletion path: statements at least 120 days old at application, plus the most recent statement within 45 days. Sale-of-business, inheritance and legal-settlement funds are excused from that seasoning.
Expect to explain large transfers. A clean paper trail from the plan statement is the single easiest way to avoid a reduced balance.
Minimums That Catch People Off Guard
The depletion path has a floor. Qualified assets must be at least the lesser of $1,000,000 or 1.25 times the loan balance. When depletion is the only income source, liquid assets must never be below $250,000. Loan amounts run from $125,000 to $3,500,000 on this path, versus up to $4,000,000 on the qualifier path.
Asset income can also supplement documented income, up to a 45% debt-to-income ratio. When it supplements, the minimum-assets rule is waived. That makes the combination attractive for a working borrower with a large 401(k) and ordinary pay. Credit follows the lender’s matrix on the depletion path, and a first-time investor there needs 700.
Sensitivity: Why Small Changes Move the Answer
Run one $400,000 vested 401(k) through both paths. On the depletion path it counts at 70%, which is $280,000, or about $4,667 of monthly income over 60 months. On the qualifier path, a borrower under 59½ gets 90%, which is $360,000 of usable assets. At 59½ or older, all $400,000 counts.
Those numbers do different jobs. One feeds a debt-to-income test. The other helps cover a loan outright. Choosing the right path often matters more than any other variable. Illustrative only; the lender’s calculation governs.
What About Rental Investors and DSCR?
This is where many investors get tripped up. A DSCR loan tests the property’s rent against its payment. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Personal assets are not converted into income.
So for a rental purchase, a 401(k) rarely behaves like income. It supports the down payment and reserves instead.
Across the network, many programs credit vested retirement accounts toward reserves, though the treatment is not universal. Confirm the specific program. One more practical point: investment property is eligible on the depletion path only at lower leverage. For a pure rental, DSCR is usually the more direct route, with liquid assets sitting in reserves.
Pulling the Money Out Is a Different Decision
Counting a 401(k) for qualification does not require cashing it out. Spending it does. Paychex notes that traditional 401(k) withdrawals are taxed as ordinary income and that plan administrators withhold 20% for federal taxes unless the money goes to a direct rollover. The penalty applies on top for early withdrawals unless an exception fits.
The takeaway is simple. Using 401(k) cash for a down payment can cost far more than the lender’s haircut implies. Qualifying with the account intact often costs less.
Common Reasons a 401(k) Gets Reduced or Declined
- Unvested employer match included in the stated balance.
- An outstanding plan loan that was not netted out.
- Statements that miss the seasoning window.
- Unexplained large deposits or transfers.
- Counting the same dollars for income and reserves.
- Assuming the qualifier path’s percentages apply on the depletion path.
Key Terms Defined
Vested balance: The portion of a retirement account that legally belongs to you.
Haircut: The share of an asset’s value a program refuses to count.
Depletion divisor: The number of months, 60 here, used to turn usable assets into monthly income.
Seasoning: How long funds have sat in an account before they count.
Qualifier path: The route where assets cover the whole loan and no income is documented.
Frequently Asked Questions
Can I use a 401(k) if I am still working?
Yes, on many programs, subject to underwriting. Some plans restrict withdrawals while you are employed, so a lender may want access documented. Asset income may also supplement your documented pay up to a 45% debt-to-income ratio on the depletion path.
Does turning 59½ change the percentage?
It does on the asset qualifier path, where the 401(k) moves from 90% to 100%. On the depletion path, retirement accounts count at 70% at any age. Always name the path before comparing figures.
Do I have to liquidate my 401(k)?
No. The balance is evaluated on paper. Liquidating triggers ordinary income tax, possible withholding and a possible early-withdrawal penalty, so it is usually the costlier choice.
Do Roth and traditional accounts count the same?
Programs treat retirement accounts as one category, so both generally take the same percentage. The tax consequences of withdrawing differ, though, which is a question for a qualified professional.
Will a 401(k) help me qualify for a rental purchase?
Not as income on a DSCR loan, because the property’s rent is what gets tested. It can support reserves and the down payment, depending on the program.
If you are qualifying on assets rather than income and want to see how the numbers work, Lendmire can help you compare asset-based mortgage options based on your statements, the property, credit profile, leverage, and your goals. Consumer mortgage lending is available in 16 states, and all figures here are program ceilings and floors, not offers or a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving self-employed and high-net-worth borrowers in 16 states. Bank statement, P&L-only, 1099-only and asset-based mortgages are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Investors who want the broader program framework can review how DSCR loans work.
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References
1. IRS Topic 558: Additional tax on early distributions
2. IRS bulletin on distributions before age 59½
3. Paychex: What is a 401(k) withdrawal?
This article is part of Lendmire’s asset-based mortgage program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Buy a California Rental Property on Asset Depletion Income? · Asset Depletion vs DSCR for a North Carolina Rental Purchase · How Much of Mutual Funds Counts Toward Asset Depletion Income?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.