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Fannie & Freddie – Calculating Income from Sporadic 401(k) Distributions
Question:
My client has a history of receiving distributions from his 401(k) account, although the frequency of these distributions is not consistent. Can I average the last two years and use that as income?
Answer:
Unless the dollar amount is ‘fixed’ and the same amount is drawn monthly, quarterly, etc., the income must be averaged as defined in the Fannie Mae income trending guideline requirement. However, take a look at Freddie Mac; it has, in my opinion, more discretion for the lender to consider. Fannie Mae appears to require the use of an average based on bullet point number one for Income Trending, whereas Freddie Mac appears to offer a more liberal approach if the lender or underwriter can justify and rationalize their approach with documentation and accompanying justification.
References:
Fannie Mae Section B3-3.1-01
Freddie Mac Section 5305.1
Supporting Resource:
Our subscribers have access to the chart “Retirement Account Withdrawals Used as Income”, which is located under our “Income Analyzer” page.