Your 401(k) and IRA after you move to India
Your US retirement accounts don't have to move with you. Here are your options, how the US and India tax withdrawals, and the best times to take the money out.
The short version
Leave it in the 401(k)
- Your 401(k) can stay with your old employer's plan after you move
- It keeps growing, tax-deferred in the US
- Fewer investment choices; the plan may force out balances under $7,000
Roll it into an IRA
- Move it to an IRA at a US broker, with no tax if done directly
- Wider choice of funds; several old 401(k)s in one place
- Do it before you move: some brokers won't open accounts for people living in India
Cash it out
- Taxed as income in the US
- Plus a 10% penalty if you're under 59½
- Makes sense mainly for small balances, or as part of a plan for your RNOR years
How withdrawals are taxed
| In the US | In India | |
|---|---|---|
| While you're RNOR (first 2 to 3 years back) | Taxed as income; 10% penalty if under 59½ | Generally not taxed, if paid into your US account |
| Once you're ordinarily resident (ROR) | Taxed as income; 10% penalty if under 59½ | Taxed at your slab rate, with credit for US tax paid |
| Growth while you don't withdraw | Not taxed | Can be taxed only when you withdraw, if you choose this (Form 10-EE) |
| Roth 401(k) or Roth IRA | Qualified withdrawals tax-free | India doesn't follow the Roth's tax-free treatment; get advice |
The US usually withholds tax from withdrawals by people living abroad (often 30%), and you file a US return (Form 1040-NR) to settle the actual amount. US citizens and green card holders stay taxed by the US on all their income and keep filing a normal US return.
When to withdraw
- You're under 59½ and don't need the money soonLeave it invested. Early withdrawals cost a 10% penalty on top of US tax.
- You're over 59½, or close to it, when you move backConsider withdrawing during your RNOR years, when India generally doesn't tax it. You pay US tax only. Check your RNOR years.
- You left your job in or after the year you turned 55The "rule of 55" lets you take money from that employer's 401(k) without the 10% penalty. It doesn't apply to IRAs.
- Your balance is large and you'll be in India for goodSpread withdrawals over many years to keep the US tax low, and file Form 10-EE in India so the growth is taxed only as you withdraw.
- You'll reach 73 (75 if born in 1960 or later)The US requires minimum withdrawals each year from then on, wherever you live.
Before you leave the US
- Ask your 401(k) plan and broker what happens when your address is in India: some restrict trading or close accounts. Roll over or move brokers while you still live in the US.
- Keep a US bank account and phone number for withdrawals, transfers and two-step logins.
- Update beneficiaries and nominations on every account.
- Think about US estate tax. If you're not a US citizen or green card holder, US estate tax can apply to US assets, including 401(k)s and IRAs, above just $60,000. Ask an adviser whether to move some money out over time.
- Plan the tax with an adviser who knows both countries, especially for Roth accounts, large balances and the timing of withdrawals.
In India, once you're ordinarily resident: report your 401(k) and IRA in Schedule FA of your tax return every year, and claim credit for US tax with Form 67. Missing Schedule FA can bring heavy penalties under the Black Money Act.
Questions
Can I keep my 401(k) after moving to India?
Yes. You don't have to close it. It can stay with your old employer's plan or move to an IRA, and keep growing until you withdraw. Plans may cash out balances under $7,000 after you leave the job.
Is 401(k) money taxed in India?
Not while you're RNOR, if the withdrawal is paid into your US account. Once you're ordinarily resident, withdrawals are taxed in India at your slab rate, with credit for US tax paid. You can choose to be taxed in India only as you withdraw, not as it grows, by filing Form 10-EE.
What is Form 10-EE?
An Indian tax form that lets residents with retirement accounts in the US, UK or Canada be taxed in India only when they withdraw, matching how those countries tax them. File it with or before your tax return for the first year you're ordinarily resident.
Can I still contribute to my IRA from India?
Only if you have US earned income, such as wages from US work. Income earned in India doesn't count.
Should I roll my 401(k) into an IRA?
It gives more investment choice and puts several old plans in one place. But some US brokers limit accounts for people living in India, and the 401(k) “rule of 55” doesn't apply to IRAs. Decide, and roll over, before you move.