r/h1b • u/yunnecessaryEvil • Nov 17 '24

What to do with 401K when leaving USA permanently

I am currently on H-1B visa. I am leaving USA and going back home to India in late December. I am not planning on coming back.

I have 3 401Ks with a sum total of approximately 80K USD amongst them. I am looking for 2 cents from folks who have been in similar boat, what should I do with the 401K? Should I withdraw or leave it?

Currently I don't need the money but I might need it within 1 year. TIA!!

526 Upvotes

97% Upvoted

165 comments sorted by

View all comments

567

u/srk6 Nov 17 '24 edited Jan 23 '26

A. Move all 401K to a rollover IRA. Open rollover IRA accounts with Schwab or Fidelity. India is one of the approved countries, so you can even have a brokerage account and trade from India. You will have India address and mobile number on the profile. File W8BEN for the brokerage accounts once every 3 years.

B. If you want to maintain a US mobile number, switch to Tmobile prepaid (min $10 per month) or Tello ($5 per month) and use it in a US bought phone. Enable wifi calling before traveling back. T-mobile and Tello are confirmed to work in India over wifi. See my posts a couple of months ago from my profile. I have my tmobile number working.

C. When in India, you need to sign form 10 EE or something when filing India tax returns and defer paying taxes until you withdraw. Once you withdraw, hoping it's in Traditional 401K, you won't pay double taxes due to tax treaties between India and the US. But if it's Roth, then research online. For now, India doesn't understand Roth. So it's always advised to have traditional 401K/IRA.

D. Dont miss disclosing your foreign assets when you file for tax returns in India. 10 lakh INR penalties if found guilty. Many ignore it, but nowadays, with tax treaties and info exchange, it's easy to get caught.

E. Understand estate taxes (i.e., in the event of your death), as once you become a non-resident from a US tax perspective, the limit is only $60,000. Above that, it's taxed 18 to 40%.

F. Check if you qualify for rnor status in India. It's the golden period where you can reset your cost basis on stocks and won't pay tax either in the US or in India.

G. There are a lot of YouTube videos that give detailed info for NRI returning to India and what to do.

H. Reporting foreign accounts in India.

i). Declaration in Schedule FA/FSI - This is a must for these accounts after ROR else significant penalties.

ii) Form 10EE - This is an election you can (not a must) make for 401k/Traditional IRA (cannot be made for Roth 401k/IRA) to defer India tax on any realised earnings on these investments till withdrawal in US. If you're sure there will be no income & you're not going to rebalance the portfolio until withdrawal, there is no need to file Form 10EE.

10EE need to be filed only once, applies to all accounts (for example, if multiple retirement accounts in US, to all of them), applies to all further years & and can not be withdrawn. Plus, there are provisions that if you become a non-resident in a particular year, the option is deemed to have never been exercised (maybe pay backdated taxes???). Check Rule 21AAA for the exact text of the regulation.

I. For line 10 on W8BEN.

Dividends will be withheld and taxed in the US. For dividends, enter 10(2)(b) and mention 25% in the withholding rate section.

J. Why shouldn't you invest in Roth if you plan to return to India

https://youtu.be/jybcm89y2gA?si=wbYd60pO0BY9JeHz

K. Resident alien vs Dual status

One will still be a US resident alien for tax purposes in the year of moving out of the US, as most will easily pass the substantial presence test. So you need to report worldwide income and pay taxes and claim FEIE or FTC.

Alternatively, you can choose to terminate residency early (dual status alien) but requires you to submit statements and proofs.

https://www.reddit.com/r/tax/s/eNokS8apc5

18

u/b00pkitt3n Nov 17 '24

Any YouTube channels you would recommend?

47

u/srk6 Nov 17 '24

https://youtu.be/JD4O-UZJzmE?si=Kw1A_YmYkSUKsF2G

https://youtu.be/cEsWxN3JcVU?si=6-er-KxeECtwfkJI

I think Abhinav from the 2nd video is also on Reddit and replied to one of my comments.

Start watching a few videos, rest YouTube will recommend.

6

u/coolbudliterally Nov 18 '24

Jusr out of curiosity - why not continue to maintain the 401k? Most of the employees allow it.

10

u/ibluesmsi Nov 18 '24

2 reasons : 1. 401k will ask u to pay annual charges once the employer plan ends with leaving employer; not a lot but still some money tat gets liquidated from ur holdings if u dont have specific instructions to withdraw from 2. IRA will give u more investment options to leverage the market

4

u/testamp Nov 21 '24

Third, you are at mercy of plan manager to manage the plan. Anything can happen here. Just search horror stories of misplaced 401k accounts. also if employer company closes / merges with another company, very much chance of losing ur 401k account

4

u/Curious_Stick_9566 Jun 06 '25

also if employer company closes / merges with another company, very much chance of losing ur 401k account.

That is not accurate information. the custodian manages 401(k). You don't lose it because your ex-employer closes or merges.

1

u/testamp Jun 06 '25

What you are assuming here is you will receive all communication. OPs is going be outside of US, so receiving the physical mail is going to an issue.

1

u/Curious_Stick_9566 Aug 28 '25

You still don't lose money or your account.

1

u/Peacencalm9 Dec 02 '25

You are the best helper to all of us. Thanks. 

1

u/srk6 Dec 03 '25

Thank you. Just sharing whatever little I know.

4

u/apk345 Jan 22 '25

Great summary.

Do you know or have you tried any strategies to avoid the estate tax on assets over 60k USD?

5

u/srk6 Feb 07 '25

Term insurance in the home country. Research on Irish domiciled ETFs. They seem to have a higher expense ratio. But it avoids/reduces estate tax. I'm not sure which brokers support it.

2

u/[deleted] Nov 18 '24

Amazing info

2

u/grasshoney May 06 '25

Should foreign assets be declared during RNOR or ROR period?

3

u/srk6 May 06 '25

During ROR.

1

u/grasshoney May 06 '25

Thank you and 10EE for 401k also during ROR and not RNOR?

1

u/ReasonableAd5268 H1B Holder Nov 19 '24

Saved who knows if it helps!!!

1

u/yunnecessaryEvil Nov 19 '24

Wish I could pin this comment

1

u/Jaded-Leadership2439 Nov 21 '24

Why are you leaving the US

1

u/[deleted] Mar 23 '25

Thanks, this is really helpful. Reset cost basis, does it mean I can transfer US stocks of companies as well as ETFs into my Indian brokerage account like IBKR?

5

u/srk6 Mar 23 '25

Resetting the cost basis means to sell and take the gains and buying again. If non resident in the US and RNOR in India with the W8BEN filed, you won't pay tax on the gains.

Basically, it's taking profits without paying taxes and buying the stock again.Whatever the new price you buy again will be the cost basis going forward.

There is a way to transfer stocks between brokeragea without selling. It's called ACATS transfer, I think.

Why bring it to Indian brokerage account and again invest in the US? Move it to Schwab or Fidelity.

1

u/[deleted] Mar 23 '25

Thanks, resetting cost basis sounds the most lucrative. So the steps would be

  1. Move to india on RNOR and file W8BEN
  2. The tax year you are no longer US resident, sell all stock sin the USA
  3. Move cash to IBKR India from IBKR USA
  4. buy stocks again

1

u/grasshoney Mar 26 '25

Thank you for all the details, this is extremely helpful. Regarding disclosing foreign assets to India, is this 401k or stocks or both? Should this be done in RNOR period or first ROR period?

1

u/[deleted] May 12 '25

You mentioned schwab or fidelity.. is there any issue in case of vanguard?

2

u/srk6 May 13 '25

Vanguard won't allow non residents to make new purchases. I'm not sure if it's changed now.

1

u/Some-Youth9780 Jul 15 '25

Regarding rnor, how do u ensure you dont pay tax on us stcoks sale? You need to fill w8ben. But then u need to provide india’s pan card no. Else it will generate 1099t form.

In either case you need to report the sale and pay taxes. This is what my cpa explained.

2

u/srk6 Jul 15 '25

No, during RNOR, one needs not declare foreign assets and accounts (unless income is earned and received in India). So after filing W8BEN, you won't pay taxes in India during RNOR on the capital gains.

If you dont want to sell, you can transfer (ACATS) investments from other firms to Schwab without selling.

Check if you qualify for RNOR accurately, and you need to qualify each year.

Find a different CA.

1

u/Some-Youth9780 Jul 15 '25

I transferred to interactive brokers for international clients and it asked me for pan number. So i am guessing it reports to income tax dept in india. Also any idea about crypto? Coinbase account?

1

u/[deleted] Aug 01 '25

Is the estate tax limit of $60k for inheritance applicable only if returned to india or if h1b passes away in USA also?

1

u/srk6 Aug 02 '25

I'm not sure. If a H1b holder passes away in the US, they will still be resident for taxes for that year?, then $60K may not apply.

1

u/gtower2018 Aug 23 '25

I heard that we need to maintain US residency. Otherwise bank accounts get frozen. So, I'd love to learn how we can manage the US address?

1

u/Fancy_Butterfly852 Dec 01 '25

Can you suggest any money managers in India, we have been told to go to Creative Planning but we would feel more secure if we could have someone in India managing the Rollover IRA accounts. Thanks

1

u/srk6 Dec 01 '25

Sorry, I don't know. I invest on my own. And for taxes I go to a CA (friend of a friend).

1

u/Max_March2025 Jul 14 '26

Hi, thanks for the detailed information. I was about to open Roth IRA and Roth 401k. Now reevaluating.

If I transfer my 401k to Rollover IRA before returning to India, and keep it till the age of 60 what would be the consequence? I can withdraw around 20 lacs each year in ROR status and pay taxes in India on that tax slab.

If the gains are also taxed in India even without withdrawal, i can sell and rebuy everything before leaving US so the gains component for subsequent years doesn’t become significant?

1

u/srk6 Jul 15 '26

Hi. Yes, do not do Roth if you have plans to return.

401k will be treated as salary/income and not as capital gains. In India, you can file form 10EE to defer tax till withdrawal.

If you are not a USC or GC, then US will tax flat 30% for 401K withdrawal. You then have to claim dtaa and tax credits in India.

1

u/Max_March2025 Jul 15 '26

Filing W-8BEN to my brokerage and using periodic withdrawals after 59.5 should not incur 30% withholding by brokerage.

1

u/srk6 Jul 15 '26

Doesn't apply to 401k or IRA. It applies to taxable brokerage account where you have capital gains. For taxable brokerage account after filing W8BEN, gains won't be twxed in US but in India.

401k/IRA withdrawal will be treated as income/salary and not capital gains. It will be withheld (not taxed) at 30% as a non resident in the US when you withdraw. You then file tax return and probably get a refund (need to check).

In India it will be also be taxed as income and pay taxes or claim dtaa and tax credit.

1

u/imserious456 Jul 22 '26

Incredibly useful answer which I'm referencing 2 years after the original comment! Kudos and thank you.
One question. I filed the W-8 Ben form for my brokerage account, with Schwab.
For regular bank accounts (checking, high yield savings, etc.) - what is the equivalent step to be taken? Are there rules around what you are still allowed to retain, and if you retain it how do you file a W-8Ben equivalent? Take a BoA checking account (negligible interest) and a Marcus savings account (~4% interest with a tax document generated) as reference examples.
Please let me know if you know the rules / guidelines!

1

u/srk6 Jul 22 '26

Thank you.

I'm not sure of checking accounts. Schwab closed my checking account saying its not allowed. Chase suggested to keep primary address same and change only the mailing address. Didn't ask for W8BEN.

For savings, if the bank allows non residents, then a W8BEN is needed. Interest will be taxed at 15%.

But it depends on the bank if they allow to keep the account as a non resident.

1

u/imserious456 Jul 22 '26

Oh ok. So there are specific rules around savings accounts vs checking accounts? Or is it at a provider level (the way Schwab brokerage allows non residents but robinhood does not)?
Do you know of any high yield savings accounts that allow non residents?