The Quick Read: Take the required minimum distribution on its normal schedule, move it into a bank account, and keep the paper trail that links the withdrawal to the deposit. On an asset-based mortgage, the withdrawal does not count as income. It only changes which account holds the money and how much of it counts.
- On the asset qualifier path, the loan is covered by eligible assets alone, and no income is documented.
- On the asset depletion path, usable assets divided by 60 months become qualifying income.
- A withdrawal lowers the retirement balance and raises the cash balance. The credit percentages differ, so the usable total can shift.
- Skipping or delaying the withdrawal to keep balances tidy can trigger an IRS excise tax. Don’t do it.
- Statements, the custodian’s distribution confirmation, and the matching deposit are the core documents.
Retirees and near-retirees often hold most of their wealth in IRAs and 401(k) plans. They also owe the IRS a yearly withdrawal from those same accounts. That collision is what this article covers. It is written for cash-heavy, income-light borrowers buying or refinancing a principal residence or second home. Investment property is covered only on the asset depletion path, with lower leverage. Lendmire is a broker. It arranges these loans through select lenders in its wholesale network, subject to underwriting, and it does not lend or approve.
What Is a Required Minimum Distribution?
An RMD is the minimum amount an owner must withdraw each year from certain retirement accounts. The IRS says it generally applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, and workplace plan accounts once the owner reaches the required age. FINRA lists the covered accounts as traditional, SEP and SIMPLE IRAs, plus 401(k), profit-sharing, 403(b) and 457(b) plans.
The start age depends on birth year. It is 73 for many current retirees and 75 for younger cohorts. The edge birth years are unsettled, so check the IRS page for yours.
Timing matters to a loan file:
- The first RMD is due by April 1 of the year after the year the owner reaches RMD age.
- Every later RMD is due by December 31.
- A borrower who delays the first one can owe two in the same calendar year. That produces larger movements on statements.
The amount comes from the prior year-end balance divided by an IRS distribution period. The borrower’s custodian usually calculates it. The loan file does not need the formula. It needs the evidence that the withdrawal happened.
Key Terms Defined
- RMD: The yearly minimum a retirement-account owner must withdraw once the required age is reached.
- Asset qualifier path: A path where eligible assets alone cover the whole loan, and no employment or income is documented.
- Asset depletion path: A path where usable assets divided by 60 months become a monthly qualifying income that runs through the debt-to-income test.
- Usable assets: The balance that counts after each account type’s credit percentage or haircut.
- Seasoning: The length of time funds must sit in an account before they count, shown by statements.
- Continuance: The agency idea that income must be expected to continue for a set period. It matters for agency income analysis, not for these two paths.
How Does Underwriting Treat an RMD, Step by Step?
Across the wholesale network, the answer is mechanical. The RMD is treated as a movement of assets, not as income. Here is how it plays out.
1. Choose the path first. The two paths treat the same money differently. A borrower is qualified on one path at a time.
2. Count the retirement balance on that path. On the qualifier path, 401(k) and IRA balances count at 90% under age 59½ and 100% at 59½ or older. RMD-age borrowers are well past that line, so the credit is 100%. On the depletion path, retirement accounts count at 70% at any age.
3. Take the RMD on schedule. The balance drops by the gross amount withdrawn.
4. Let the cash land in a bank account. Cash and savings count at 100% on both paths. The bank balance rises by the net amount after any tax withholding.
5. Document the movement. The file needs the custodian’s confirmation of the distribution and the statement showing the deposit. Underwriters ask about unexplained deposits. A clean pairing answers the question before it is asked.
6. Re-run the usable-asset total. The lender’s own calculation governs. Illustrative arithmetic helps you see the effect.
What the Withdrawal Does to the Numbers
Take the depletion path. Say a borrower has $1,000,000 in a retirement account and moves part of it to cash through the RMD. Retirement counts at 70%, cash at 100%. Every dollar moved from the retirement account to the bank gains 30 cents of usable credit. The withdrawal, in other words, tends to help the usable total on that path, though the tax withholding takes a slice of the gross amount.
On the qualifier path, a borrower at 59½ or older sees retirement and cash both count at 100%. The withdrawal changes the account holding the money but not the usable total, apart from withheld tax and any spending.
The sanctioned shapes for the arithmetic are these. On the qualifier path, an $800,000 loan with $330,000 in brokerage accounts, $300,000 in a 401(k) under 59½ at 90%, and $200,000 in savings counts $800,000 of usable assets and is reviewed on assets alone. On the depletion path, $1,500,000 in securities at 80% plus $300,000 in cash at 100% is $1,500,000 usable. Divided by 60 months, that is $25,000 of monthly qualifying income, which then carries the housing payment and other debts through the debt-to-income test. These are illustrations. The lender’s own calculation governs.
Does the RMD Count as Income?
Not on the asset qualifier path, where no income is documented at all. On the depletion path, the qualifying income is derived from assets divided by 60 months, not from the distribution amount. The RMD itself is not added on top.
Contrast this with agency conventional underwriting. Under the Fannie Mae Selling Guide, retirement distributions used as income must be documented as expected to continue for at least three years. A fixed distribution needs no minimum history, while a variable one needs 12 months of receipt. Those are agency rules. They do not govern the two asset-based paths described here. A borrower who wants the RMD counted as income is looking at a different loan type with different paperwork.
One related rule helps here. A borrower who is drawing on an account should not count that same account twice. On the depletion path, the balance counts once as an asset.
Which Path Fits an RMD Borrower?
The decision turns on how large the assets are against the loan.
| Factor | Asset qualifier | Asset depletion |
|---|---|---|
| What qualifies | Assets cover the whole loan | Assets become monthly income |
| Income documented | None | Derived, runs through DTI |
| Retirement credit | 90% under 59½, 100% after | 70% at any age |
| Leverage, purchase | Up to 80% | Up to 80% on primary or second home |
| Leverage, refinance | Up to 75% | 60% on cash-out |
| Loan amounts | Up to $4,000,000 | $125,000 to $3,500,000 |
| Statement rule | Two months, 60-day seasoning | 120-day-old plus one within 45 days |
For a retiree with most wealth in IRAs, the qualifier path often gives the cleaner credit, because retirement counts at 100% after 59½. The catch is that eligible assets must equal or exceed the entire loan. When assets fall short of the loan, the depletion path may fit. There, the retirement haircut is steeper, but the assets only need to generate enough income to carry the payments. Depletion also carries minimum assets, generally the lesser of $1,000,000 or 1.25 times the loan, and never below $250,000 liquid when it is the only income source. Both paths are subject to underwriting and credit review. The credit floor on the qualifier path is 600, and the depletion path follows the lender’s matrix.
Lendmire’s complete DSCR loans guide covers the separate rental-financing side for borrowers who also buy purely for rent.
What Documents Does an RMD Create?
Plan for these items:
- The two most recent months of statements for each qualifying account on the qualifier path, or statements at least 120 days old plus one within 45 days on the depletion path.
- The custodian’s distribution confirmation, showing gross amount, withholding, and net.
- The bank statement showing the matching deposit.
- For a 401(k), evidence the borrower can access the funds.
- A short written explanation for any large movement, if the underwriter asks.
Withholding deserves attention. The IRS treats an RMD as taxable income in the year taken, and NerdWallet notes that unless the money was already taxed, it is taxable in the year of withdrawal. If the custodian withholds tax, the deposit is smaller than the gross figure. Expect the net number on the bank statement and reconcile it to the confirmation. Tax treatment varies; consult a qualified professional.
Where the General Rule Breaks
The mechanics above hold most of the time. These cases bend them.
Multiple accounts. A UC fact sheet notes that distributions from one plan do not satisfy the requirement for another. A borrower with several 401(k)s may show several partial withdrawals across statements. IRAs can be treated differently, so the pattern on the statements may not match the account list. Label each deposit to its source.
The still-working exception. The IRS says participants in a workplace plan can delay RMDs until the year they retire, unless they own 5% or more of the sponsoring business. The exception does not apply to traditional IRAs. A borrower may therefore have an RMD on the IRA and none on the 401(k).
Inherited accounts. Inherited IRAs follow a 10-year rule, with exceptions for a surviving spouse, a minor child, a disabled or chronically ill person, and someone not more than ten years younger than the owner. Withdrawals can look like unexplained deposits. Keep the inheritance paperwork next to the statements.
Roth accounts. Roth IRAs have no RMDs for the original owner. NerdWallet reports that RMDs from Roth 401(k)-type plans were eliminated by SECURE 2.0. A borrower holding Roth balances has no RMD to document there.
Outstanding 401(k) loans. A loan against the plan lowers the balance that can count. Subtract it before running the numbers.
Pledged or borrowed funds. These are not published as eligible on either path. The documented route is converting funds to a seasoned cash balance in a regulated account, with the source reviewed by the lender.
Timing the RMD Around the Application
What follows are working habits. They are not rules from the lender.
- Before applying: Take the year’s RMD if it is already due or near due. A balance that has already moved needs less explanation later.
- During review: A withdrawal mid-file changes the balance the lender saw last month. Send the new statement and the distribution confirmation together.
- Late in the year: An RMD due December 31 can land during a late-year closing. The IRS says a shortfall may carry a 25% excise tax, or 10% if corrected in time. A borrower should never skip it to keep balances steady.
- Don’t prepay. A provider guide from Employee Fiduciary says taking more than the minimum does not reduce future RMDs, and RMDs cannot be prepaid. Take the normal amount on the normal schedule.
If the borrower plans to use RMD cash toward a down payment or closing costs, remember that funds leaving the account no longer count toward the usable total. On the depletion path, cash proceeds from a cash-out never count as qualifying assets.
Common Mistakes
- Skipping the RMD to protect a retirement balance. The penalty costs more than the credit gained.
- Moving the cash between several accounts before the application. Each move creates another line to explain.
- Treating the RMD as qualifying income on an asset-based file.
- Counting the same balance as both an asset and a drawn income stream.
- Forgetting that withholding makes the deposit smaller than the gross figure.
- Sending one statement when the program wants two months on the qualifier path.
- Assuming crypto, precious metals or collectibles count at a percentage. They are not published as eligible. Convert to seasoned cash first, and the lender reviews the source.
What to Ask Your Loan Officer
1. Which path fits my balances, the assets-cover-the-loan route or the assets-become-income route? 2. How will the lender count my IRA or 401(k) balance after the RMD comes out? 3. Which statements, and how many months, does the file need for each account? 4. How should I label the RMD deposit so it pairs with the custodian confirmation? 5. Does my property type change the leverage? Investment property is only available on the depletion path, at lower leverage.
All figures here are typical ceilings and floors through select programs, subject to underwriting. The loan is a consumer mortgage, so consumer mortgage disclosures apply. This is the opposite of a business-purpose rental loan, and the programs are separate.
Frequently Asked Questions
Does my required minimum distribution count as income on an asset-based mortgage?
No. On the qualifier path, no income is documented. On the depletion path, income is derived from usable assets divided by 60 months, not from the RMD amount. Agency income rules that look for three years of continuance belong to a different loan type.
What if I have not taken my RMD yet when I apply?
Take it on its normal schedule and document it. Delaying it to protect a balance risks the IRS excise tax, which is 25% of the shortfall and 10% if corrected within two years. Send the new statement and distribution confirmation to the file as soon as they exist.
Can the RMD money go toward my down payment or closing costs?
Yes, once it sits in a bank account, but spent funds no longer count as assets. On the qualifier path, eligible assets after credit percentages must still cover the entire loan. Check the remaining total before you commit the cash.
Does it matter which account I take the RMD from?
It can, because per-plan rules mean 401(k) withdrawals are tracked account by account, while IRAs can be combined. The lender cares less about which account you chose and more about whether each balance and deposit is documented and explainable.
Do Roth accounts create an RMD I need to document?
Not for the original owner of a Roth IRA, and RMDs from Roth 401(k)-type plans were eliminated by SECURE 2.0. Inherited Roth accounts follow their own rules, so ask your custodian.
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. Reach the team at 828-256-2183 or through the quote page.
For current guidelines and terms, see Lendmire’s asset-based mortgage programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. IRS: Retirement Plan and IRA Required Minimum Distributions FAQs
2. FINRA: Required Minimum Distributions
3. Fannie Mae Selling Guide B3-3.4-03
4. NerdWallet: Required Minimum Distribution Explainer
5. University of California: Minimum Required Distributions Fact Sheet
6. Employee Fiduciary: 401(k) Required Minimum Distributions
This article is part of Lendmire’s asset-based mortgage program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Big Can an Assets-Only Mortgage Be? · How to Document an Assets-Only Mortgage · Asset Qualifier Mortgage vs Bank Statement Mortgage
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.