Retirement Accounts as Mortgage Reserves in 2026: 401(k), IRA, and Vesting Rules

Retirement accounts are often the largest liquid asset a borrower holds outside of home equity. Knowing how to count them accurately prevents both understating the borrower's qualifying assets and overcounting in a way that creates problems later.

Haircuts by Account Type

• ✦401(k), 403(b), TSP: 60% of the vested balance under Fannie Mae and Freddie Mac guidelines
• ✦Traditional IRA: 60% of the vested balance; early withdrawal penalty applies if the borrower is under 59.5
• ✦Roth IRA: contributions (cost basis) can be withdrawn without penalty at any age; earnings are subject to penalty if under 59.5 and the account is less than five years old; typically 70% to 100% depending on the borrower's age and account age
• ✦SEP-IRA, SIMPLE IRA: same 60% haircut as traditional IRA
• ✦Self-directed plans: same rules apply; the asset value still receives the standard haircut

Vesting Requirements

The vested balance means only the portion the borrower actually owns. Employer match contributions that have not yet vested do not count. For borrowers with fewer than five years of employment tenure, request a current vesting statement from the plan administrator to confirm the actual vested amount. Applying the 60% haircut to the wrong balance is a common error that overstates available reserves.

Using Retirement Funds for Down Payment

If the borrower plans to take a 401(k) loan, the loan repayment amount counts as a monthly liability in DTI. Document the loan terms and add the payment to the DTI calculation. If the borrower is withdrawing rather than borrowing, document the net proceeds after applicable penalties and taxes; only the net amount can be used. Retirement funds cannot be committed for both the down payment and reserves simultaneously; only what remains after the down payment is used at closing counts toward reserves.