The Quick Read: Only a discounted share of the vested balance in a 401(k) or IRA counts toward DSCR refinance reserves, and the exact percentage is set by each program rather than by any regulation. Across the wholesale network, retirement money is treated as less liquid than cash, so a balance is credited below face value, and unvested or inaccessible funds are left out entirely.
- Reserves on a refinance are typically about 6 months of PITIA, and about 9 months on loans above $1,500,000, subject to lender guidelines.
- Only the vested balance counts, and an outstanding plan loan reduces it.
- Cash and brokerage accounts are used first; retirement funds usually fill the remaining gap.
- Funds liquidated for closing are no longer reserves, and the same dollars cannot be counted twice.
- You generally do not have to withdraw the money for it to count, though the plan’s access terms still matter.
What Are Reserves on a DSCR Refinance?
Reserves are documented liquid assets you still hold after the refinance closes. Lenders measure them in months of PITIA: principal, interest, taxes, insurance, and any association dues on the subject property.
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DSCR underwriting qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Personal income isn’t the focus, so reserves become the cushion. If a unit sits vacant or a tenant turns over, the borrower can cover the payment from personal funds instead of the property.
Across the programs we place files with, the common expectation is about 6 months of PITIA. Loans above $1,500,000 typically step up to about 9 months. Conservative rate-and-term refinances at modest leverage under $1,500,000 can sometimes see reserves waived. Cash-out refinances, which top out around 75% LTV on standard rentals, sit at the heavier end. These numbers vary by lender, leverage, loan size, and transaction type, so treat them as ranges, not promises.
Do Retirement Accounts Count at All?
Yes, usually, but at a discount. Vested retirement balances can generally be counted as reserves, but at less than face value. The discount is an underwriting proxy for what you would actually net if you pulled the money out.
The logic comes from the tax side. The IRS says most distributions before age 59½ carry a 10% additional tax on top of regular income tax. A lender that credited the full balance would be overstating usable cash. So the program haircuts the balance to approximate what remains after tax and penalty.
That haircut is not an IRS rule. DSCR loans are business-purpose investor loans, so each program and investor sets its own percentage. There is no single regulatory figure. Across the network, the share credited differs from program to program, which is why a single percentage quoted online should be treated as one lender’s view, not a universal answer. For the exact treatment on a specific file, a broker can check the guidelines of the programs that fit the deal. Lendmire’s piece Does a Retirement Account Count as Reserves on a DSCR Refinance? covers the yes-or-no question in more depth.
How Is the Counted Amount Calculated, Step by Step?
The calculation has a fixed order, and walking it in sequence prevents most surprises.
1. Set the requirement. Multiply the months of reserves the program asks for by the subject property’s PITIA. A cash-out refinance may carry a different month count than a rate-and-term deal.
2. Stack liquid assets first. Checking, savings, and brokerage accounts are normally used before retirement funds. Retirement money fills whatever gap remains.
3. Isolate the vested balance. The statement must show the vested amount, not just the account total. Employer-match money still on a vesting schedule is excluded.
4. Subtract plan loans. An outstanding 401(k) loan reduces the available balance.
5. Apply the program’s percentage. Counted amount equals the vested balance times the program’s credit percentage. As a pure illustration of the formula, a vested balance of 100 units at a 60% credit counts as 60 units. That percentage is a placeholder for the arithmetic, not a network figure.
6. Confirm access. The plan has to let the borrower reach the funds.
7. Compare. Counted retirement funds plus other liquid assets are measured against required reserves after closing costs and any cash to close.
To run it in reverse, divide the shortfall by the program’s credit percentage. If cash covers part of the requirement, the remainder divided by that percentage tells you the vested balance you need to show.
Which Account Types Count? A Quick Matrix
Account type changes both eligibility and the paperwork. This table summarizes the usual pattern, though each program decides for itself.
| Account | Usually eligible? | Main access issue |
|---|---|---|
| Traditional IRA | Generally yes | Taxed and penalized if withdrawn early |
| Roth IRA | Often yes | Contributions vs. earnings treated differently |
| 401(k) while employed | Depends on plan | In-service withdrawals are optional |
| 401(k) after leaving job | Generally yes | Vested balance must be shown |
| Unvested employer funds | No | Not yet owned by the borrower |
The access column deserves attention. Plan-provider education notes that 401(k) plans are not required to allow in-service distributions, the plan document controls, and employee deferrals before 59½ are generally limited to hardship withdrawals. SmartAsset likewise describes in-service withdrawals as an optional plan feature. A current employer’s plan with no such option may be excluded or scrutinized heavily, while an IRA is generally easier to reach.
Where Does the General Rule Break?
Several edge cases change the answer.
Borrowers over 59½. The IRS says the 10% additional tax no longer applies after 59½. Some programs may treat older borrowers more favorably, though that is program-specific.
Roth balances. The 10% tax does not apply to tax-free withdrawals of contributions, per IRS Publication 590-B. Whether a program rewards that with better treatment varies.
Hardship. People assume a hardship withdrawal dodges the penalty. The IRS notes there is no 10% exception specifically for hardship, so a program has no reason to credit it more generously.
Funds used for closing. If retirement money is liquidated to cover cash to close, it stops being a reserve. Evidence of the actual distribution is needed, and only the net amount received is usable.
Other asset types. Retirement, brokerage, and business accounts are often treated differently, so don’t apply the retirement haircut to other assets.
Lower-coverage files. Sub-1.00 coverage is available through select lenders in the network, with leverage and terms adjusted. Files like that, and higher-leverage files, can carry heavier reserve expectations, so retirement funds may cover only part of the requirement.
Rate-and-Term vs. Cash-Out: Does the Refinance Type Change Reserves?
It can. A conservative rate-and-term refinance at modest leverage under $1,500,000 is where waivers most often appear. A cash-out refinance, capped around 75% LTV on standard rentals, usually carries the full reserve expectation, and larger loans step up to about 9 months.
Whether cash-out proceeds themselves can count toward reserves depends on the program. Don’t plan around it until a broker confirms the guideline for the specific lender. Leaning on proceeds you haven’t yet received is one of the more common planning errors.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Count It or Cash It Out?
In most cases, leave the balance in place and let it be counted. Pulling money out triggers the tax and penalty cost described above, can create sourcing questions, and shrinks the countable balance because the net received is what matters.
The flip point is access. If the plan won’t release funds and no other assets fill the gap, a borrower may need to restructure rather than rely on the account. Tax treatment varies; consult a qualified professional before moving retirement money.
If Reserves Fall Short
Options exist before a deal is abandoned:
- Add cash or brokerage balances to the stack.
- Request a lower-leverage structure, since reserve rules often ease with a larger equity cushion.
- Look at a smaller loan amount or a rate-and-term structure if the goal allows it.
- Wait until the vested balance grows or a plan loan is paid down.
A bigger down payment or more equity can lower the payment and lift coverage, but it never erases reserve rules, credit floors, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage. Clearing 1.00 on coverage is also not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation.
Documentation Checklist
Gather these before applying:
- Account statements showing the vested balance. Statements typically cover two months, and names must match the borrower.
- A plan-loan statement if any loan is outstanding.
- A written statement of the plan’s access terms from the administrator.
- Documentation of any transfers, so no unsourced deposits appear.
For how scaling a portfolio stretches reserves across several loans, see Lendmire’s article How Much a Portfolio Cash-Out Refinance Holds as Reserves. The complete DSCR loans guide covers the wider program picture.
Key Terms Defined
Reserves: Liquid assets held after closing, measured in months of PITIA.
PITIA: Principal, interest, taxes, insurance, and association dues on the subject property.
Vested balance: The portion of a retirement account that legally belongs to the borrower.
Haircut (credit percentage): The share of an asset a program counts toward reserves.
In-service withdrawal: A distribution from a 401(k) while still employed by the plan sponsor.
Frequently Asked Questions
Does the whole 401(k) balance count as reserves?
No. Only the vested portion counts, and only at a discounted percentage set by the program. Outstanding plan loans reduce it further.
Do I have to withdraw the money for it to count?
Generally not. The account is documented with statements, not liquidated. What matters is that the plan allows access, because an account that can’t be reached may be excluded.
Can I use the same retirement dollars for the down payment and reserves?
No. Reserves are what remains after cash to close, so the same dollars can’t be counted twice.
Is a Roth IRA treated better than a traditional IRA?
Sometimes. Roth contributions can generally come out tax-free, which some programs recognize, but treatment varies by program.
How many months of reserves will I need?
About 6 months of PITIA is common, and about 9 months above $1,500,000, though conservative rate-and-term files at modest leverage can see reserves waived. Requirements vary by lender and file.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals, through DSCR programs across 41 markets, including Washington, D.C.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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References
2. Human Interest – 401(k) withdrawal rules
3. SmartAsset – In-service withdrawals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR vs Conventional Refinance for a Landlord Near the DTI Limit · How Much Income a DSCR Lender Counts on a Brand-New Airbnb · Can You Do a DSCR Cash-Out Refinance on a Multifamily Building?
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.