Definition: The mortgageto-income rule, also known as the 401k mortgage-to-income rule, is a federal law that provides certain tax benefits to individuals who borrow money from their employer's 401(k) plan. The rule was created by the Internal Revenue Service (IRS) in order to encourage people to save for retirement and reduce taxable income. The rules are based on two basic principles: 1. Eligibility: Individuals must meet certain age, wage, and employment status requirements before they can use the mortgage-to-income rule. For example, individuals under 40 years of age and those with no employer-employee relationship cannot use the rule. 2. Limitations: The maximum amount that an individual can borrow from their employer's 401(k) plan depends on several factors such as the employee's contributions, the employer's contributions, and the loan-to-value ratio (LTV). The LTV is the percentage of the mortgage debt over the employee's total income. The primary purpose of the mortgage-to-income rule is to reduce the amount of money that individuals are allowed to borrow from their 401(k) plans. This is done by requiring employers to set aside a portion of each employer's contributions into the plan and allowing these funds to be used for qualified retirement expenses. The goal of the mortgage-to-income rule is to encourage people to save and invest in their retirement, which can reduce tax liability for individuals and businesses. The exact details of the rules vary by state and may require additional steps such as proving financial needs or other relevant criteria before an individual can use the mortgage-to-income rule.

mortgage to income rule