Your 401(k) represents years of hard work and disciplined savings. But when you're moving back to India, one wrong decision could cost you thousands in penalties and taxes. Avinash breaks down the five most practical options for managing your 401(k) when returning to India - from direct IRA rollovers to careful RNOR/ROR withdrawal timing. You'll discover exactly how to preserve your wealth, minimize avoidable tax friction, and avoid compliance headaches during your financial transition.
Podcast
What Happens to Your 401(k) When You Move to India? 5 Options
A practical guide for how to compare 401(k) rollover, withdrawal, RNOR/ROR timing, US withholding, and Indian tax records before moving retirement money from India.
In this story
- The 401(k) Strategy Most Returning NRIs Should Compare First
- How to choose a 401(k) withdrawal path from India
- Key Takeaways
- What Happens to Your 401(k) When You Move to India?
- How Does Your Tax Residency Status Affect 401(k) Decisions?
- Option 1: Should You Leave Your 401(k) With Your Former Employer?
- Option 2: How to Rollover Your 401(k) to a Traditional IRA
- Option 3: Should You Convert Your 401(k) to a Roth IRA?
- Option 4: Can You Withdraw Your 401(k) During RNOR Status?
- Option 5: What If You Withdraw After Becoming a Resident Ordinary Resident (ROR)?
- Bonus Strategy: Using SEPP to Avoid Early Withdrawal Penalties
- 🧭 Choosing the Right Path
- Frequently Asked Questions About 401(k) Options When Moving to India
- Related Articles
The 401(k) Strategy Most Returning NRIs Should Compare First
Do not start with "withdraw or keep everything." Start with your age, US tax status, India RNOR/ROR year, plan rules, and whether the withdrawal would be periodic or lump-sum. A practical 2026 review should compare these five paths before any distribution request goes to the custodian.
| Option | Best fit | Tax/compliance check before acting |
|---|---|---|
| Keep the 401(k) invested | You do not need funds soon and the plan has low fees. | Confirm non-resident access, address rules, beneficiary setup, estate-tax exposure, and RMD timing. |
| Direct rollover to Traditional IRA | You want better investment choice and simpler online control. | Use a direct rollover so the transfer itself is not treated as a taxable distribution. |
| Periodic withdrawals | You are over 59.5 or can support a penalty exception and want staged income. | Check W-8BEN, India-US DTAA Article 20 treatment, Indian FTC/Form 67, and whether the plan supports periodic payments. |
| RNOR-window withdrawal or conversion review | You recently returned and may still be RNOR. | Model India tax residency, source/receipt facts, US withholding, and whether Section 89A/Form 10-EE is relevant for deferred retirement income. |
| Early lump-sum withdrawal | Last resort or a deliberate simplification decision. | Price the 10% early-distribution penalty, ordinary income tax, 30% default withholding risk, and India tax/FTC sequence before requesting it. |
How to choose a 401(k) withdrawal path from India
Use this sequence before you request a 401(k) withdrawal, IRA rollover, or RNOR-window distribution. It keeps the decision tied to account rules, tax residency, and paperwork instead of guesswork.
Step 1: Confirm age, penalty, and exception status
Check your age, separation date, disability status, SEPP eligibility, and other IRS exception facts before assuming the 10% additional tax applies or can be avoided.
Step 2: Ask the plan or IRA custodian about India access
Confirm whether the institution accepts your India address, W-8BEN, online login, beneficiary update, 1099-R delivery, direct rollover request, and periodic-payment setup.
Step 3: Compare keeping, direct rollover, staged withdrawal, and lump sum
Put the four practical paths side by side: leave the 401(k), use a direct Traditional IRA rollover, take periodic withdrawals, or request a lump-sum distribution only after pricing tax and penalty cost.
Step 4: Map US tax, India RNOR/ROR year, and foreign tax credit records
Model US withholding, ordinary income, early-distribution penalty, India residential status, DTAA position, Section 89A/Form 10-EE relevance, and FTC/Form 67 records before choosing withdrawal timing.
Step 5: Document the decision before submitting forms
Save custodian emails, plan documents, tax-residency calculation, advisor notes, and transfer instructions before initiating a rollover or distribution from India.
2026 source checks before you touch the account
- Early distributions: check the current IRS exception list before assuming the 10% additional tax applies or does not apply.
- Rollovers: use a direct rollover where possible, because an indirect distribution can create withholding, 60-day deadline, and redeposit problems.
- Non-resident paperwork: confirm W-8BEN, India address, beneficiary, and online access rules with the plan or IRA custodian before you leave the US.
- India timing: map the withdrawal year against RNOR/ROR status, DTAA position, Section 89A/Form 10-EE relevance, and foreign-tax-credit records.
- Estate planning: if you keep large US retirement balances after becoming a nonresident alien, review the IRS nonresident estate-tax filing threshold and treaty position before assuming heirs are safe.
How to withdraw 401(k) from India
If you are searching for 401k withdrawal from India or how to withdraw 401k from India, do not start by clicking the distribution button. First ask the plan administrator whether a direct rollover to a Traditional IRA is available, whether your India address and W-8BEN are accepted, whether online access and 1099-R delivery will work from India, and whether the payout is a periodic distribution, full lump sum, or rollover-eligible distribution.
- Direct rollover: usually the cleanest non-taxable movement if you want to preserve US retirement status and avoid current withholding.
- Indirect rollover: creates a 60-day deadline and retirement-plan distributions paid to you can face 20% mandatory withholding, so you may need outside cash to complete the full rollover.
- Actual withdrawal: taxable in the US, may face the 10% additional tax before age 59.5 unless an exception applies, and must be mapped against Indian RNOR/ROR taxability and FTC/Form 67 records.
Review the full US asset cluster before choosing a 401(k) withdrawal
A 401(k) withdrawal decision can change the answer on Roth IRA, US brokerage, RNOR timing, foreign-asset disclosure, and India bank-account cleanup. Before requesting a distribution, line up these related decisions in one file.
- Roth IRA after moving to India - check the 5-year rule, age 59.5, RNOR window, and Section 89A uncertainty.
- US stocks and options after moving to India - separate existing offshore holdings from fresh India-funded LRS investing.
- NRI joint-account rules after return - clean up NRE/NRO/resident account structure before moving retirement proceeds.
- NRI financial checklist before returning to India - sequence tax residency, accounts, investments, and remittance records.
Key Takeaways
- RNOR status is your review window: Check whether 401(k) withdrawals may receive India tax relief during RNOR based on source, receipt, treaty position, and records
- IRA rollover offers flexibility: Convert your 401(k) to a Traditional IRA for better investment options and lower fees without triggering taxes
- Estate tax trap for non-residents: Assets over $60,000 face up to 40% estate tax—plan accordingly if keeping funds in the US
- Early withdrawal penalty is 10%: If you're under 59½, factor this into your decision unless you qualify for exceptions
- Timing matters more than amount: Strategic withdrawals during RNOR years may reduce Indian tax exposure, but only after checking receipt location, source, treaty position, Section 89A/Form 10-EE relevance, and FTC/Form 67 records
What Happens to Your 401(k) When You Move to India?
A 401(k) is a U.S. employer-sponsored retirement account that provides tax-deferred growth. However, when you leave the U.S. or stop working for your employer, decisions about what to do next directly affect taxes, penalties, and future accessibility. Understanding these fundamentals is crucial before you evaluate your options.
Critical 401(k) Rules You Need to Know:
- Withdrawals before age 59½ → incur 10% early withdrawal penalty (unless exceptions apply under IRS rules)
- Traditional 401(k) withdrawals count as ordinary income, fully taxable in the U.S. at your marginal rate
- Roth 401(k) withdrawals (contributions tax-free, but earnings may be taxable in India depending on your residency status)
- Estate tax risk: an executor for a nonresident not citizen of the US generally must file Form 706-NA if US-situated assets exceed $60,000; retirement accounts and treaty treatment need specialist review under IRS nonresident estate rules
- Tax law updates: taxation occurs on withdrawals, not unrealized gains—giving you control over when to trigger tax events
How Does Your Tax Residency Status Affect 401(k) Decisions?
Your tax residency status in both countries determines how much tax you'll pay on 401(k) withdrawals. Understanding this is the foundation of making smart decisions.
Your U.S. Tax Status After Moving
Once you move back permanently, you'll usually be a non-resident for U.S. tax purposes (unless holding a green card). As a non-resident, you lose standard deductions and "married filing jointly" benefits. This means your effective tax rate on 401(k) withdrawals may be higher than when you were a U.S. resident.
Your Indian Tax Status: Three Categories
When you return to India, you'll fall into one of three residency categories under the Income Tax Act:
- Non-Resident Indian (NRI) — taxed only on India-sourced income
- Resident but Not Ordinarily Resident (RNOR) — a transition category where foreign-income taxability depends on receipt, accrual, business-control, profession, treaty, and record facts
- Resident and Ordinarily Resident (ROR) — taxed on global income including foreign assets
During RNOR years, foreign income is not automatically taxed like ROR global income, but 401(k) withdrawals still need fact-specific review: where the income is received, whether it is deemed received in India, whether any business/profession exception applies, how the treaty position is taken, and what records support FTC/Form 67 if India tax applies. This makes RNOR a review window, not a blanket "tax-free" button. You can learn more about RNOR status and tax benefits to maximize this opportunity.
Need help understanding your residency status?
Get personalized guidance → Book a 30-min consultation
Option 1: Should You Leave Your 401(k) With Your Former Employer?
The simplest, "do nothing" option — but not always the smartest choice for NRIs returning to India.
✅ Pros:
- No immediate action required; funds continue growing tax-deferred
- Maintain U.S. dollar exposure for currency diversification
- No tax consequences or penalties for leaving it untouched
❌ Cons:
- Limited investment choices and typically higher expense ratios (0.5-1.5% vs 0.05-0.2% for index funds)
- Employer may restrict access or force distribution once you've left the job
- Difficult to manage from India—limited online access and customer service hours
- Estate tax exposure remains (40% on amounts over $60,000 for non-residents)
- Annual compliance burden with U.S. tax filings
Verdict: Not recommended long-term unless your plan offers exceptional low-cost funds (expense ratios under 0.2%) and you plan to return to the U.S. within a few years.
Option 2: How to Rollover Your 401(k) to a Traditional IRA
This is the most popular strategy for NRIs returning to India who want to maintain long-term U.S. retirement savings with better control and lower costs.
✅ Pros:
- No 10% penalty or immediate taxes on rollover—it's a tax-free transfer
- Broad investment flexibility with custodians like Fidelity, Vanguard, or Charles Schwab
- Significantly lower fees (expense ratios as low as 0.03% for index funds)
- Easier online management from India with 24/7 access
- Consolidate multiple 401(k) accounts from different employers into one IRA
- More withdrawal flexibility—no employer restrictions
❌ Cons:
- Estate tax exposure remains (non-resident limit $60,000, then 40% tax on excess)
- Annual U.S. tax filing obligations continue (Form 1040-NR)
- Must open IRA account before leaving the U.S. (harder to open from India)
- Required Minimum Distributions (RMDs) start at age 73
"Open your IRA while you're still in the U.S. — Fidelity and Vanguard allow foreign addresses later, but account opening requires a U.S. address initially."
If you're considering this option, you should also understand the IRA rollover rules for NRIs to ensure compliance and avoid costly mistakes.
Set up cross-border compliant IRA management
Get the Financial Transition Blueprint → Join Inner Circle
Option 3: Should You Convert Your 401(k) to a Roth IRA?
This strategy converts pre-tax funds into an after-tax vehicle. It's a sophisticated move that works well in specific situations but isn't right for everyone moving to India.
✅ Pros:
- Future qualified withdrawals are completely tax-free in the U.S. (after age 59½ and 5-year holding period)
- No Required Minimum Distributions (RMDs)—funds can grow indefinitely
- Great for long-term diversification and estate planning if you plan to return to the U.S.
- Tax-free growth for decades if you're young and have time horizon
- Can withdraw contributions (not earnings) anytime without penalty
❌ Cons:
- Immediate U.S. tax liability during rollover year—you'll pay ordinary income tax on the entire converted amount
- Roth IRA earnings are taxable in India under Indian tax law, since India doesn't recognize Roth tax-free status
- Estate tax and compliance complexity remain for non-residents
- Makes sense only if you're in a low tax bracket during conversion year
- Not beneficial if you're permanently settling in India
Verdict: Suitable only for those planning to return to the U.S. later, maintain citizenship ties, or who are currently in a very low tax bracket. For permanent returns to India, Traditional IRA or RNOR withdrawals are better options.
Option 4: Can You Withdraw Your 401(k) During RNOR Status?
If your move to India is permanent and you want simplicity with maximum tax efficiency, withdrawing during your RNOR phase may be the ideal strategy. This is often the most overlooked yet powerful option for NRIs.
✅ Pros:
- India tax may be reduced during RNOR years when the withdrawal facts, source, receipt, treaty position, and records support that position
- Dramatically simplified tax filings—no need for foreign tax credits or double reporting
- Complete financial freedom—invest funds anywhere in India without restrictions
- Strategic currency conversion—move USD to INR when forex rates favor you
- Eliminate future U.S. compliance burden—no more annual U.S. tax returns after withdrawal
- No estate tax risk—funds are now in India under your control
- Can spread withdrawals across 2-3 years to manage U.S. tax brackets
❌ Cons:
- 10% early withdrawal penalty applies if you're under age 59½ (unless you qualify for exceptions)
- U.S. ordinary income tax on the withdrawn amount at your marginal rate (typically 22-24% for most NRIs)
- Lose future tax-deferred growth potential in the U.S.
- Must time withdrawals carefully within RNOR window
📊 Real Example: RNOR Withdrawal Strategy
If you withdraw $50,000/year during two RNOR years (total $100,000):
- U.S. federal tax (22% bracket): $11,000 per year
- Early withdrawal penalty (10%): $5,000 per year
- Total U.S. cost: $16,000 per year (32% effective rate)
- Indian tax: depends on RNOR facts, receipt location, treaty position, and Indian return treatment; do not assume zero without advisor review
- Net amount received: $34,000 per year to invest freely in India
- Potential savings vs ROR withdrawal: can be meaningful, but only if the facts support reduced Indian tax and FTC documentation is handled correctly
Compare this to withdrawing as a Resident Ordinary Resident (ROR), where global-income taxation and foreign-tax-credit mechanics usually become more involved.
To maximize this strategy, you need to understand how RNOR status works and plan your withdrawal timing carefully. Many NRIs also benefit from understanding comprehensive tax planning strategies when returning to India.
Plan tax-optimized 401(k) withdrawals during RNOR
Get expert tax planning → Join Inner Circle
Option 5: What If You Withdraw After Becoming a Resident Ordinary Resident (ROR)?
For those who missed the RNOR window or didn't plan ahead, withdrawing as a Resident Ordinary Resident is still possible—but it's the most expensive option due to dual taxation.
✅ Pros:
- Still provides access to your funds when you need them
- Can claim foreign tax credit via U.S.–India tax treaty (DTAA) to reduce double taxation
- No time pressure—withdraw whenever you need the money
❌ Cons:
- Dual taxation exposure—taxed in both U.S. (22-24%) and India (30% top rate)
- Complex compliance requiring coordination between U.S. CPA and Indian CA
- Foreign tax credit calculations are complicated and may not eliminate all double taxation
- Higher effective tax rate (typically 35-45% combined after credits)
- Must file tax returns in both countries annually
- Potential for errors leading to penalties if not handled by experts
Verdict: Only choose this if you're already a full resident (past RNOR window) and have expert cross-border tax support. The tax cost is significantly higher than RNOR withdrawals—potentially 15-20% more in combined taxes.
If you find yourself in this situation, working with professionals who understand both U.S. tax rules for non-residents and Indian tax law is essential to minimize your tax burden.
Cross-border CPA Advisory (U.S.–India)
Get professional support → Join Inner Circle
Bonus Strategy: Using SEPP to Avoid Early Withdrawal Penalties
For advanced users only—this strategy requires careful planning and professional guidance.
SEPP (Substantially Equal Periodic Payments) is an IRS-approved method that allows early 401(k) withdrawals without the 10% penalty if you commit to taking fixed annual payments for at least 5 years or until age 59½ (whichever is longer). However, it's complex and irreversible once initiated.
How SEPP Works:
- Calculate annual payment using one of three IRS-approved methods (RMD, Fixed Amortization, or Fixed Annuitization)
- Commit to taking the exact same amount every year—no flexibility
- If you modify or skip a payment, the entire penalty is retroactively applied to all previous withdrawals
- Best suited for those under 59½ who need consistent income and have substantial retirement savings
"SEPP is a good option for high-net-worth individuals needing structured cash flow, but requires a CPA for setup and ongoing compliance. One mistake can cost you thousands in retroactive penalties."
Who should consider SEPP: Early retirees with $500,000+ in retirement accounts who need predictable annual income and can commit to the rigid payment schedule.
🧭 Choosing the Right Path
| Your Goal | Recommended Option |
|---|---|
| Long-term diversification | Traditional IRA rollover |
| Simplicity & tax optimization | Withdraw during RNOR |
| Permanent return to India | RNOR withdrawals or Traditional IRA |
| Possible future U.S. return | Roth IRA rollover |
| Need fixed income stream | SEPP plan |
Frequently Asked Questions About 401(k) Options When Moving to India
Can I keep my 401(k) if I move to India?
Yes, you can keep your 401(k) when you move to India. Once you move back permanently, you'll usually be a non-resident for U.S. tax purposes (unless holding a green card). As a non-resident, you lose standard deductions and "married filing jointly" benefits. However, your 401(k) remains accessible, though you'll face estate tax exposure (non-resident limit $60,000, beyond which estate tax can reach 40%) and annual U.S. tax filing obligations.
What happens to my 401(k) when I move to India?
When you move to India, your 401(k) doesn't automatically close or get transferred. You have five main options: leave it with your former employer, roll it over to a Traditional IRA for better investment flexibility and lower fees, convert it to a Roth IRA if you plan to return to the U.S., review withdrawals during your RNOR period, or withdraw as a Resident Ordinary Resident with full Indian tax and FTC planning. The best choice depends on your residency status, age, plan rules, and whether your return to India is permanent.
How do I withdraw my 401(k) from India?
Before requesting a 401(k) withdrawal from India, ask the plan administrator whether a direct rollover to a Traditional IRA is available, whether your India address and W-8BEN are accepted, whether online access and 1099-R delivery will work from India, and whether the payout is a periodic distribution, full lump sum, or rollover-eligible distribution. A direct rollover usually avoids current withholding; an actual withdrawal is taxable in the U.S. and must be mapped against Indian RNOR/ROR and FTC/Form 67 records.
How can I withdraw my 401(k) without paying taxes in India?
During RNOR years, foreign income is taxed differently from ROR global income, but 401(k) withdrawals are not a blanket India-tax-free event. Review receipt location, source, treaty position, Section 89A/Form 10-EE relevance, and FTC/Form 67 records. You'll still pay U.S. taxes and may face a 10% early withdrawal penalty if under 59½ unless an exception applies.
Should I roll over my 401(k) to an IRA before moving to India?
Rolling over your 401(k) to a Traditional IRA is the most popular strategy for NRIs returning home. The rollover itself triggers no 10% penalty or immediate taxes—it's a tax-free transfer. You gain broad investment flexibility with custodians like Fidelity, Vanguard, or Charles Schwab, with significantly lower fees (expense ratios as low as 0.03% for index funds) and easier online management from India with 24/7 access. However, you must open your IRA while you're still in the U.S.—Fidelity and Vanguard allow foreign addresses later, but account opening requires a U.S. address initially.
What is the early withdrawal penalty for 401(k) before age 59½?
Withdrawals before age 59½ generally incur a 10% additional tax unless an IRS exception applies. Traditional 401(k) withdrawals count as ordinary income for U.S. tax purposes. During RNOR years in India, the Indian tax result depends on receipt, accrual, treaty, and return-position facts, so model it before requesting the withdrawal.
What is the estate tax risk for NRIs with 401(k) accounts?
The estate tax risk for nonresidents not citizens of the U.S. can be significant. The IRS says Form 706-NA filing is generally required if U.S.-situated assets exceed $60,000 at death. Whether and how a 401(k), IRA, treaty position, beneficiary setup, and estate deductions apply needs specialist review before you keep a large U.S. retirement balance indefinitely.
Can I contribute to my 401(k) after moving to India?
No, you cannot contribute to your 401(k) after leaving your U.S. employer. A 401(k) is an employer-sponsored retirement account that provides tax-deferred growth, but contributions can only be made through payroll deductions while you're actively employed. Once you leave the U.S. or stop working for your employer, you can no longer make contributions. However, your existing funds continue to grow tax-deferred, and you maintain all the options discussed: leaving funds in place, rolling over to an IRA, or withdrawing based on your residency status and tax strategy.
How does RNOR status help with 401(k) withdrawals?
RNOR (Resident but Not Ordinarily Resident) is a transition category under the Income Tax Act. It can be useful for 401(k) withdrawal planning because foreign income is not taxed the same way as ROR global income, but the result depends on receipt, accrual, treaty, business/profession exceptions, Section 89A/Form 10-EE relevance, and FTC/Form 67 records. Model the withdrawal before acting.
Related Articles
Final Thoughts: Choose Your 401(k) Strategy Wisely
Your 401(k) represents years of disciplined savings and can either be a powerful asset for your India life or a source of tax headaches - it all depends on the strategy you choose. By understanding RNOR timing, estate tax exposure, direct rollover rules, withholding, and Indian FTC records, you can preserve wealth and avoid avoidable compliance headaches. The key is to plan ahead: open your IRA before leaving the U.S. if that is your chosen route, understand your residency status timeline, and time any withdrawals deliberately. Your 401(k) doesn't end with your U.S. job - with the right approach, it can power your next chapter in India while keeping more money in your pocket.
Chapters
- 0:00 Introduction
- 0:44 Important information before we dive into options
- 4:18 Option 1 (Leave in employer sponsored plan)
- 4:56 Option 2 (Roll over 401k funds to Traditional IRA)
- 7:16 Option 3 (Roll over 401k funds to Roth IRA)
- 8:36 Option 4 (Withdraw 401k funds during RNOR)
- 11:53 Option 5 (Withdraw 401k funds during ROR)
- 12:55 Summary and substantial periodic withdrawal
Transcript
Auto-generated captions, lightly cleaned
0:03 Hello everyone welcome back to Desi Return today we are going to dive into an important topic what should one do with their 401K funds once they decided to move back to India so this is a continuation to our previous video where we talked about benefits of investing in 401k and whether one should invest in 401k if they have plans to move back to India soon this video should complement the previous and gives more insights into what are the different options you have for the 401K funds and which option would be appropriate for you before we
0:44 Dive into the different options here I wanted to talk about few things so that we are all on the same page and then decide which option is better for you the first with 401K funds if you withdraw the funds before 59 and a half years there is a 10% penality unless there are certain certain circumstances which we won't dive into second the funds that you withdraw from a traditional 401K would fall under earned income and you have to pay taxes in us there are different tax statuses in us a resident and non-resident and in the link in the descript description below can provide information to determine which status do you fall into please note if you're are not a US citizen or a green card holder and you're living in India you would fall under a nonresident
1:46 For tax purpose couple of things for a non-resident so you won't be available to take advantage of standard deductions you can't file as a married file jointly so there are certain differences between a resident or a non-resident when you're doing a tax filing in us so please keep that in mind in India there are three different statuses non-resident resident the third one is resident but not ordinary resident so this is a a tax status that Indian government has provided to help nris moving back to India permanently for a smooth transition this is available up to 3 years and during the rnor global income is exempt from income tax in India except the income is from a business or a profession that is controlled from India so this is an important phase when moving back to India that could help
2:46 From a tax planning third estate tax if if someone passed away and there is something called an estate tax that you have to pay you are a US citizen the threshold is $13 million as of 2024 for a non-resident it is $60,000 so this $60,000 is across all the assets that you have in us and the estate tax could be up to 40% so keep that in the back of your mind when you're selecting a particular option because this is an important thing to be considered and the last one is there has been some changes in the tax loss especially in 2021 where in the case of a 401k or a IRA funds the funds are taxed only at the time of withdrawal and not on the unrealized gains this is for a traditional 401k or an IRA however these tax laws are not
Read the full transcript (14 more sections)
3:48 Very clear for Roth IRA because the earnings on the Roth IR are not taxed in us because this is an after tax contribution however the earnings are not tax exempt in India so if you take a conservative approach these could be taxed in India at the time of withdrawal so that might not be very beneficial to have the funds in an Roth IR so let's dive into
4:19 The different options that you have when you made a decision to move back to India and what to do with your 401K funds first one leave the funds in your employed sponsor plan this could be the easiest one there is no additional work that you have to do however the funds that you have in an employer sponsored plan is very limited and also the expense ratios could be very high so this is not something that I would recommend I think at least you can roll over those 401K funds into a traditional IRA funds which is the second option
4:57 Which we will dive into so rolling over your traditional you are rolling over your 401K funds into traditional irf funds in this option there is no 10% penalty that you have to pay there is no income tax because the rolling over from a 401 to Ira is completely acceptable and it doesn't cause any tax event however when you have the funds in an IRA that is provided by a custodian you have much more many more options to invest in and the expense ratios are quite low so that gives a lot more flexibility in where you can invest and the expense ratios would be very very less so these custodians are like Fidelity Vanguard and several so if someone have plans to move back to India it might be a good idea to open an account with Fidelity or a vanard because they accept a foreign address later so it's better to open the account
6:00 While you are in US however you can't transfer the 401K funds until you leave the job so once you leave your employer that's when you would have the opportunity to roll over your 401K funds into an IRA what are the pros of this option this gives a lot of diversification so if you're looking to have funds Diversified in us and have the funds maintained in US Dollars this could help you and if you have plans in the future to be back in us or the kids to be back in us this can provide some Corpus fund to help out down the road so these are the pros in terms of the cons keep in mind about the estate tax especially if you're a nonresident and if you the estate tax limit is only 60,000 keep that in mind it's a complex tax filing where you have to report your assets in Us in India while of filing so that
7:00 Requires you know working with the CPA from a tax filing purpose but this could be an option for someone who wants a diversification or who have a different plans in a long term let's talk about the third option in the third option you want to roll
7:18 Over your 401K funds into a Roth irn not a traditional irn in the Roth IRA you don't also pay the 10% penality because you are rolling from a 401k to an IRA however you would pay the tax on the rollover because a Roth iri is a after tax contribution so the amount that you're rolling over you have to pay tax on that in that fiscal year however as we discussed earlier the tax loss for the Roth IRA earnings are not clear in India so it might not be the best idea if you have plans to live in India for a long time it has the same kind of pros and cons like the pros diversification and if you want to use the funds in the future it could help from a estate planning however the cons is the same like know 60,000 estate tax that you are applicable complicated tax returns and
8:19 More than that the tax law of India like you know like applying the taxes for the earnings is not very clear so this is not maybe something that I would recommend if you have plans to live in India now let's talk about the
8:37 Option four you want to withdraw the funds while you are in RN o phase so you have been living abroad for quite some time you qualify for ronr phase this is where you can do some tax planning if you want access to the funds and you want to you know you don't need the access to this Corpus later in the long term and you want to keep the tax filing simple you can definitely withdraw These funds during an RNR phase and some of the pros are it's definitely keeps the tax filing simplified and you can minimize the tax that you have to pay because there is no tax in India at the time of withdrawal and U in terms of the cons you have to pay 10% penality and some income tax in US so now let's walk through an example of withdrawing 401K funds during RNR
9:41 Phase let's assume that you have 100,000 in your 401k and you have two years of RNR pays as a tax resident and you would be considered as a non-resident from a US tax purpose if you have more years that you qualify for an R office you have more flexibility and if you have only one year you know changes but let's in this example assume that you have two years of RN R phase and assume you're withdrawing 50k in each year of the 100K 401K funds that you have so you have to pay 10% penality on this 50k which is equivalent to $5,000 and since you are a non-resident you have have to file as a single filer when you're filing the taxes in us so for a single filer the based on the marginal rates the total amount of tax
10:42 That you would pay for the 50k income assuming you don't have any additional income in US is about $653 so in total including the penality and the taxes it would be $1,053 for a $50,000 withdrawal this is the taxes and penalty that you would pay in us but you don't pay any taxes or anything in India because you're in RNR phase and this 11,000 is equivalent to 22.1% of the overall 50,000 so you would have this money available to invest in India and there is no tax complications that you have to manage don't have to worry about the estate tax so I just want to walk you through an example to understand what is the amount that you would pay and evaluate whether this option makes sense and also keep in mind you don't have to take everything out of your 401k and you can
11:44 Do some optimization during this RNR phase based on your needs of the funds and also the less complexity from a tax violence and the last one is you want to
11:55 Withdraw the funds when you are in roor Phase which is an resident phase resident ordinary resident so for some people they might not qualify for a RNR phase because of the the duration they were abroad or for different reasons or maybe after the RNR you trying to withdraw the funds in this situation you have to pay the income tax in India also in addition to the penality the income tax that you would pay in us so if you withdraw the funds the 10% is applicable as well as the earned income tax that you have to pay in us and there is also like income tax that you have to pay in India however there is a foreign tax credit from a double taxation avoidance treaty there's a foreign tax credit that could be applicable but please work with the CPA to do this option these are the different options
12:55 That you have and from my perspective if it is all possible either you want to leave your funds in an IRA or you want to withdraw during an RoR phase or in certain extent maybe during an hour or depending on your situation these are the main three things that I see people want to dive into dwell into and see which would be much more appropriate for them based on their long-term plans based on their citizenship immigration status depending on their risk level tax filing situations in addition to all these the there is also another option called substantial periodic withdraw this is a very complex one I won't be diving into this this is something that could be beneficial for someone to take a periodic withdraw payments from now till age of 60 there is no 10% penalty but you have to pay the income tax when you withdraw These funds and there are different C calculations on how you do the withdrawal amount which we won't
13:57 Dive into in this video you hope this content is helpful and if you have any feedback please provide your feedback in the comments and thank you very much for watching
