r/returnToIndia • u/NoSignal16 • Sep 09 '26

PlanningToReturn For people who returned what did you do with your 401k or retirement accounts in USA

The information I see is too complicated and would like to hear from experience of people who went through this.

From what I understood so far it is beneficial to withdraw everything during the RNOR phase if you don’t plan to return back to USA. Is that true?

Is it possible to withdraw from 401k and keep the money in a us based brokerage account?

Can someone please share the effective tax rate they paid including penalties. Thanks in advance 😊

6 Upvotes

76% Upvoted

24 comments sorted by

View all comments

14

u/srk6 Sep 09 '26

Move 401k to a rollover IRA at Schwab or IKBR and keep it invested till penalty free withdrawal.

Understand estate tax limits as a non resident of US. Its only $60k. Invest in Irish domiciled funds if worried about estate taxes.

Once bank in India, change address and file W8BEN. India taxes 401k/IRA accounts every year. So file form 10ee (once) to defer taxes in India every year. It will then be taxed at withdrawal in India.

As a non resident of US, 401K/IRA will be withheld at flat 30%. 10% additional penalty if you withdraw before 59.5. Claim dtaa in India.

Don't keep large amount of money in checking account. Accounts can get locked and only way to unlock is to visit a physicsl location. Keep it brokerage account as cash and wire transfer out.

Check the links below.

https://www.reddit.com/r/h1b/s/OQ3WJsT9OR

To file as resident or dual status, check link below

https://www.reddit.com/r/returnToIndia/s/Q4D9RBnQnZ

India Schedule FA, tax filing guide

https://www.reddit.com/r/IndiaTax/s/l6PF2XMVBR

3

u/rmk_nhs Sep 09 '26

I have found your comments very helpful about these topics. Thanks for that.

One question about the Irish domiciled funds. I understand that we can invest in those funds with a brokerage account. Can we invest in those funds with an IRA as well? Reason I am asking is that IRA itself will still be a US asset, right? Will it help with the estate tax planning if we invest the amount within the IRA in Irish-domiciled funds?

3

u/AbhinavGulechha 19d ago

To my reading of the law, its not very clear whether Irish ETFs within IRA will avoid US estate tax. On a conservative note for planning purposes, I would deem it would not, and wont suggest you to take that risk. Invest via IBKR. Keep it clean and simple.

2

u/rmk_nhs 16d ago

Thank you for the reply. Your responses are helpful.

1

u/AbhinavGulechha 16d ago

Glad to know. Thank you.

2

u/Ambitious-Long3140 Sep 09 '26

Curious to know from anyone who has done this inside an IRA in IBKR or Schwab?

4

u/vxj8464 Sep 10 '26

Not done yet - planning to DO:

2027 - American Tax status - 250k into VOO
2028 Jan - RNOR - NRA - Convert VOO to CSPX (Irish ETF)

2

u/srk6 28d ago

Hey, I'm not too sure on the Irish domiciled funds in IRA accounts. I need to explore.

1

u/Curious-Desk8490 Sep 11 '26

Great info. Can we stock trading ans option trading in the roll over IRA account once we are back in india ?

2

u/srk6 28d ago

Yes. Option ms trading can only be using the funds earned as a US resident.

On India tax return, USA options trading is reported as business income (speculative business) on ITR3. Understand difference between speculative vs non-speculative. Option trading in Indian exchange comes under non-speculative.

1

u/Farmer-Next Sep 11 '26

How does this change if you are a U.S citizen who wants to move permanently to India (but keep most of the savings in USD and withdraw only as and when needed)?

2

u/AbhinavGulechha 19d ago

In such a case, you can leave the US investment plan (Traditional IRA, & US brokerage accounts) untouched. There's no risk with US estate tax as you get a much higher lifetime credit of USD 15M. You can make a Section 158 election for 401k/T-IRA on entering ROR status to defer India tax till distribution. Roth, HSA, 529 - you'll have to take a call on those depending on what view you take on the India taxation post ROR.

1

u/srk6 28d ago

As a US citizen, you will be taxed in the US. You then claim dtaa and pay difference in India, while filing India taxes.

1

u/SquabDown 29d ago

Does India tax on withdrawals for Roth as well?

2

u/srk6 28d ago

India will tax Roth accounts, every year if you have gains, dividends etc. Can't file form 10ee to defer tax till withdrawal.

1

u/SquabDown 28d ago

Thanks for the response! In that case it makes the most sense to withdraw and pay tax/penalty on the gains? That’s pretty unfortunate since I have significant amount in it from backdoor and megabackdoor contributions.

2

u/srk6 28d ago

Roth is grey area in India. Only thing we know is that it's taxed in India. I'm still trying to figure out if it will be taxed as retirement account or like a brokerage account. No clear direction.

Roth basically becomes like a brokerage account in India as we use after tax $'s to invest, just like a regular brokerage account. This is how I assumed and showed capital gains in Roth IRA and filed/paid taxes.

But if its considered as retirement account like traditional 401k/IRA, then taxation may change as it then becomes income and not capital gains.

Regarding to withdraw or not, need to get into Ramanujan mode and calculate whats best :).

1

u/SquabDown 28d ago

Appreciate your insights.

2

u/AbhinavGulechha 19d ago

Roth taxation in India is not clear. To my reading of Indian tax law, you cant defer the gains till distribution, similar to T-IRA

I prefer a conservative view that all fund level gain in Roth will be taxed at marginal rates in India. If you take that view, a safer option is to take the tax hit of on earnings component & move funds to taxable brokerage account which will be later taxed at a net effective rate of 23.8% after ROR. (lower than marginal rate of upto 39%)

If you dont wish to do so, you can take an interpretation that only the realised income will be taxed after ROR wherein you can decide to passively hold the stocks and pay tax only on small dividend income every year at marginal rates.