Massachusetts Asset Depletion Loans Using Retirement Accounts: Converting 401(k)/IRA Balances into Qualifying Income

A practical guide for mortgage brokers and loan officers structuring Non QM approvals with retirement-asset based income in Massachusetts

Search intent and audience

This guide is written for mortgage brokers and loan officers who need a clear, compliant path to qualify Massachusetts borrowers using retirement assets instead of current employment income. The focus is on turning documented balances in 401(k)s, IRAs, and similar accounts into a monthly figure that underwriters can replicate and that comfortably supports the borrower’s PITIA and reserves. Use it when you work with recent retirees, high-net-worth clients in transition, partners stepping back from billable hours, or borrowers with uneven consulting income who want mortgage approvals without leaning on tax returns. Throughout, position NQM Funding as a trusted Non QM Lender, and start intake with Get a Non-QM quick quote so the file lands in the right format from day one.

Asset depletion in plain terms

Asset depletion is a qualifying method that translates verifiable assets into monthly income for underwriting purposes. Instead of documenting wages or self-employment earnings, the borrower shows sufficient liquid or semi-liquid funds that could reasonably support the mortgage over a program-defined period. The lender applies eligibility tests and a haircut to the balances, then divides by an amortization term (for example, 60, 84, 120, or 240 months depending on program) to produce qualifying income. The borrower does not need to liquidate the assets or set up distributions to use this method. You are not giving tax advice. You are presenting a reproducible math model that fits Non QM program rules, evidences Ability-to-Repay, and aligns the payment plan with retirement cash flow.

Which assets count and why

Most programs distinguish between qualified retirement accounts and non-qualified brokerage or cash equivalents. Qualified retirement accounts include 401(k), 403(b), traditional IRA, Roth IRA, rollover IRA, Thrift Savings Plan (TSP), and similar employer plans. These are typically haircut to reflect market risk and access conditions. Non-qualified assets include brokerage accounts, money market funds, U.S. Treasuries, CDs, and checking or savings balances. These often carry smaller haircuts because the funds are already post-tax and more liquid. Some plans restrict in-service withdrawals before a certain age or require spousal consent; underwriters want to know access terms even if no liquidation is required. If the retirement account is actively pledged or encumbered, or if the assets are locked behind vesting cliffs, reduce or exclude them from the depletion base. Clear ownership, clear access, and clear valuation dates determine whether the asset can support the loan.

How underwriters convert balances to income

The basic steps are consistent even when program details differ. First, verify ownership and current value using the most recent monthly or quarterly statement, plus any mid-cycle update if markets moved materially. Second, apply eligibility haircuts. For example, a program may count 70 percent to 80 percent of equities or mutual funds and 90 percent to 100 percent of cash and cash equivalents. Third, subtract funds allocated to closing costs and down payment so you do not double count the same dollars as reserves or income. Fourth, divide the remaining eligible balance by a program-defined term to derive a monthly income figure. Some programs require a shorter term if the borrower is under a certain age or will begin Required Minimum Distributions (RMDs) during the loan term. Others specify different terms for qualified versus non-qualified assets. Whatever the rule set, your cover memo should show the balance, haircut, funds-to-close deduction, term, and resulting income so a reviewer can follow the math line by line.

Here is a simple pattern you can reuse in memos. Eligible balance after haircut: one million two hundred thousand dollars. Subtract funds to close: one hundred eighty thousand dollars. Remaining: one million twenty thousand dollars. Program term: one hundred twenty months. Monthly qualifying income: eight thousand five hundred dollars. If the borrower also receives Social Security or pension payments, add those items under “other income,” with durability and continuance notes.

Ownership, access, and liquidation evidence

Underwriters want a coherent picture of who owns the accounts and how those funds can be accessed if needed. Provide recent statements that show the account holder’s name, the account type, balance, and asset classes. If the assets were recently consolidated or rolled over, include the rollover confirmation and the ending statement from the prior custodian. For employer plans, attach a page from the Summary Plan Description or a plan letter showing whether in-service distributions are permitted. If the account is a Roth IRA, clarify the mix of contributions versus earnings so the reviewer understands potential access without penalty. None of this compels a distribution. It merely proves that the assets are real, controlled by the borrower, and sufficiently liquid to support Ability-to-Repay.

Funds to close vs reserves vs depletion base

Keep three buckets separate: dollars the borrower will spend to close, dollars the borrower will hold as post-closing reserves, and dollars that remain as the basis for depletion income. Start by totaling funds to close, including down payment, closing costs, and prepaid items. Identify the specific accounts that will supply those funds. Next, map post-closing reserves in months of PITIA, listing each account by institution, last four digits, and balance after closing. Finally, compute the depletion base: the remaining eligible balance after you deduct funds to close and, where required by program, after you set aside the stated reserve requirement. Using a worksheet with these three columns prevents accidental double counting and keeps pricing stable through the approval process.

Tax and penalty considerations without giving tax advice

Mortgage underwriting is not tax planning, but it must respect the basic rules. If the borrower is under age 59 and a half, early distributions may be subject to IRS penalties in addition to income tax. This does not prevent use of asset depletion; it simply underscores why you should avoid implying that a distribution is required. If the borrower is near RMD age, the program term or depletion math may align with expected RMDs for conservatism. State-level tax rules exist, but you should direct the borrower to a qualified tax professional for advice while you underwrite to program guidelines. Your memo can say, “Qualifying income is calculated per program rules. Borrower will consult a tax advisor regarding any optional distributions.”

Combining sources for stronger files

Asset depletion works well on its own, and it pairs nicely with durable income sources. Social Security awards, pensions, military retirement, annuity payments, or consistent dividend/interest streams can be layered to build a resilient income profile. If the borrower continues light consulting, bank statement analysis of recent deposits can add texture without transforming the file into a self-employment case. Keep every source documented with continuance notes. The narrative for the reviewer is, “This borrower’s mortgage is supported by conservative asset-derived income plus modest fixed benefits, with reserves that cover many months of PITIA.” The more the story reads like a measured plan rather than a math trick, the smoother the approval.

Rates and structures that fit retirement cash flow

Retirement households tend to prioritize payment stability, liquidity, and flexibility. A fixed-rate structure keeps the monthly obligation steady, which pairs well with predictable Social Security or annuity payments. A hybrid ARM can reduce the early payment when the borrower expects to downsize other debt or accelerate principal curtailments, often after a year-end bonus or a required distribution arrives. Interest-only periods, when available, can preserve liquidity during market volatility or while the borrower transitions from full-time work to part-time consulting. Whatever you choose, show the payment plan: the month-one PITIA, the reserves in months of PITIA, and any planned curtailments. The plan should stand independent of market performance, so the file does not hinge on optimistic return assumptions.

Risk layering and compensating factors

Non QM approvals reward clarity and cushion. If leverage is higher or the property type introduces complexity (for example, a non-warrantable condo or a building with an elevated master-policy deductible), strengthen the file with thicker reserves and a conservative depletion calculation. If the borrower’s credit file is thin due to long-term use of auto-pay and few open tradelines, include alternative credit references and a clean housing history. If the retirement accounts are concentrated in a single equity fund, acknowledge that volatility and offset it with additional cash equivalents. The message to underwriting is simple: we recognize the risks, we sized the depletion income conservatively, and we preserved payment strength with liquidity.

Documentation checklist that speeds approvals

Use a short, uniform intake list that underwriters will recognize. Provide the most recent monthly or quarterly statements for each retirement and brokerage account. Include any rollover confirmations and plan-access documentation for employer plans. Add proof of account ownership and titling that matches the loan application and vesting. Collect property tax estimates, insurance quotes, and any HOA or master-policy information, because these inputs affect PITIA and therefore the reserve and income narrative. Bundle a one-page depletion worksheet and a one-page reserve map. Launch every file through Get a Non-QM quick quote so borrowers upload the right items from the start.

Massachusetts market notes for local SEO

Boston and Cambridge condos. Review HOA budgets, the master policy, and deductible structure for wind, water, and special per-unit deductibles. Many associations require a 6(d) certificate at closing to confirm that condo fees are current. Older elevator buildings in Back Bay or Beacon Hill can carry higher master-policy deductibles and reserve funding needs, which affect the all-in payment. Newer Seaport or Kendall Square towers may have robust amenities and correspondingly higher dues; integrate those dues into the PITIA model for transparent affordability.

North Shore and South Shore. Coastal towns from Marblehead to Scituate face flood-zone mapping, wind coverage considerations, and sometimes separate deductibles for named storms. If the borrower is buying a second home on the coast, include flood insurance quotes and the elevation certificate in the payment narrative. Inland South Shore communities with septic or well rely on private maintenance agreements that can affect operating costs and marketability; flag these items for the appraiser and underwriter.

Metrowest and Worcester County. Suburban single-family homes in towns like Natick, Framingham, and Westborough often appeal to retirees staying near family while reducing commute-driven needs. Property tax rates and exemptions vary by town; include the most recent tax bill or assessor estimate. Worcester’s downtown condo market requires the same association diligence as Boston, with careful attention to budgets and special assessments that affect owner costs.

Cape Cod, Martha’s Vineyard, and Nantucket. Coastal insurance and flood coverage are central to affordability. Condos and condo-hotels may involve rental-program rules and association bylaws that shape occupancy. While asset depletion can qualify the borrower, make sure the occupancy matches the program—second home versus investment—and adjust the narrative if the client plans some seasonal rental. Ferry access and seasonal maintenance can influence appraisals; include a brief note in the appraisal packet describing travel logistics and any special assessments for shoreline protection.

The Berkshires and hill towns. Second homes near Lenox, Stockbridge, and Great Barrington rely on heating type, winter access, and private road maintenance agreements. Appraisals benefit from an exhibit packet that highlights acreage, outbuildings, and recent capital improvements. Insurance can vary widely by construction type; add those quotes to the payment model to prevent DSCR or affordability questions when reserves are calculated.

Two Massachusetts scenarios to model

Scenario one: a retired biotech professional buying a Cambridge condo. The borrower has one point eight million dollars in mixed assets across a 401(k) that was rolled to an IRA, a Roth IRA, and a taxable brokerage account. After applying program haircuts and subtracting three hundred thousand dollars for down payment and closing costs, the depletion base is one million three hundred thousand dollars. The program term is one hundred twenty months. The resulting monthly qualifying income is about ten thousand eight hundred dollars. HOA dues are nine hundred fifty dollars per month and the master-policy deductible is elevated; those numbers are included in the PITIA and reserve narrative. Reserves after closing equal fifteen months of PITIA. The memo reads like a plan that anticipates association cost structure rather than discovering it during conditions.

Scenario two: an early-retiree couple purchasing a Cape Cod second home using combined retirement assets. They hold separate IRAs and a joint taxable brokerage account. After haircuts and a set-aside for flood and wind insurance premiums, the depletion base across accounts is eight hundred fifty thousand dollars with a program term of one hundred twenty months. Monthly qualifying income is approximately seven thousand eighty dollars. Because the couple plans light seasonal rental, the occupancy is second home and the loan structure is fixed to keep payments steady year-round. They maintain twelve months of PITIA in post-closing reserves across both borrowers and keep an emergency liquidity cushion in cash equivalents. The file clears quickly because the income math, reserves, and coastal insurance were integrated up front.

When investment purchases fit DSCR instead

If the same borrower also acquires Massachusetts rentals, property-level qualification may be more efficient. A coverage approach evaluates each property’s rent support against PITIA and realistic expenses. This lets the borrower keep retirement-asset math focused on the primary or second home while the rentals carry themselves. Use the Investor DSCR loan page to outline how market-rent schedules, HOA dues, taxes, and insurance drive coverage. When DSCR and asset depletion appear in the same conversation, keep the files separate with distinct narratives, timelines, and checklists.

Where bank statements or a light P&L still help

Some retirees continue consulting or advisory work. When deposits are modest yet consistent, a short bank-statement window can supplement the depletion story without dominating it. The Bank statement mortgage resource helps set expectations about counted deposits, excluded transfers, and expense assumptions. Do not let supplemental income muddy the retirement narrative; treat it as a bonus, not a crutch.

Foreign national and cross-border scenarios

Massachusetts attracts international professionals and retirees. If assets sit abroad, identity, funds path, and reserve depth carry the file. Provide passport or visa pages or ITIN, translated statements, and a simple money map that shows foreign exchange and wire paths into a U.S. account. Pair conservative leverage with thicker reserves to offset documentation friction. For product expectations and intake, reference Foreign National mortgage options while keeping the depletion math straightforward and conservative.

Broker talk tracks that set expectations

Replace “no doc” framing with clear, compliant language. “We will use an asset-based Non QM path designed for borrowers like you who have substantial retirement savings but limited current employment income. We will not require you to liquidate assets. Instead, we will verify ownership and value, apply conservative program haircuts, and convert the remaining balance into qualifying income over a program term. We will also separate funds to close from reserves so the numbers are realistic. From there, we choose a payment structure that aligns with your cash flow.” Promise specificity—full statements, a depletion worksheet, a reserve map, and a payment plan—and your clients will stay confident.

FAQ to preempt conditions

Are recent rollovers eligible? Yes, with documentation that shows the funds left one retirement account and arrived in another under the borrower’s control.

Can Roth IRAs count? Yes. Programs typically apply haircuts and may consider contributions more accessible than earnings; document the mix and keep the math conservative.

Do we have to start taking distributions? No. Depletion is a qualifying method; it does not require a distribution.

How do reserves interact with depletion? Many programs require a fixed number of months of PITIA in reserves. Deduct required reserves and funds to close before you compute depletion income so you do not double count.

Will market volatility cause conditions? Provide current statements. If markets move materially during the process, refresh balances so the math stays accurate.

Can we combine depletion with other income? Yes. Social Security, pensions, annuities, or small consulting deposits can be layered if documented with continuance.

Internal links and calls to action

Move prospects from interest to action with a predictable path. Begin intake with Get a Non-QM quick quote to capture account statements and plan-access documentation. Teach deposit-driven options for any side consulting using the Bank statement mortgage page. If rental purchases are on deck, align expectations with Investor DSCR loan and keep the files separate. For cross-border retiree buyers, set identity and funds-path expectations using Foreign National mortgage options. Reinforce brand authority by positioning NQM Funding as a Non QM Loans partner that excels with asset-based approvals in Massachusetts.