401K withdrawal strategies for NRIs

Welcome to the FIdesiRE blog for yet another useful post where we will be discussing the 401K Withdrawal strategies that you can use when you return back to India.

Most of the Indians who have worked in United States for a short stint or for long term would have came across 401K plans offered by the employer. Even if you are starting your carrier in US now, grab this 401K offer by your employer as most of the employers provide matching contributions up to certain percentage. This is free money, why leave it on the table?

The problem comes when you want to shift back to India and withdraw this 401K early, as it comes with lot of rules and regulations around withdrawal. Similarly if you are an Indian FIRE aspirant like me who wants to retire in India, we may want to move this money to India sooner. Here are the strategies that I thought of to withdraw the money from 401K, each have its own pros and cons.

We have these three main constraints while withdrawing the money and remitting it to India.

  • Tax on withdrawal in US
  • Penalty on Early Withdrawal if you are aged less than 59.5 years
  • 2 or 3 Years of RNOR status in India i.e. Tax exemption to bring in Foreign assets into India

So lets look into the 401Kwithdrawal strategies in detail below:

1. Withdraw immediately

This is simple withdrawal strategy but may involve huge penalty and/or tax depending on your Earning profile, time of leaving for India etc.

If you are leaving US to India early in first quarter, that makes your earnings less than Standard deduction for the tax year and your 401K money is less than Standard deduction i.e. $12,000 for those filing single and $24,000 for those filing jointly.

So you will be able to avoid Tax on this money. Please note that you will have to be in US for a minimum of 31 days to be considered as US resident for that tax year.

If are leaving US late in the year and/or have more earnings than the Standard deduction, then you will have to pay the Tax on the withdrawal amount depending on your Tax slab

However, you would still have to pay penalty of 10% if your age is less than 59.5 years.

No tax in India since you will be within 2 years of RNOR status and there is no tax on this money during this period.

2. Withdraw next year

When you withdraw your 401K an year after you return to India, you may lose your US Resident status unless you have a green card and hence will have to pay NRA tax. NRAs are taxed at 30% unless your country has a tax treaty with US. For Indians, based on the Tax treaty, you would have to pay 15% and this requires submission of W-8BEN form to claim this rate.

Then on top of this, you will have to pay 10% early withdrawal penalty as well.

3. Roth Conversion and withdraw after 5 years

This option is to convert your 401K into Roth IRA during initial years of your shift back to India making it post tax money. You may have to pay tax during Roth Conversion depending on time and amount you are converting as explained above. Then withdraw from Roth IRA after 5 years to skip the 10% premature withdrawal penalty on the principal.

You may need to pay taxes in India on this withdrawal money if you withdraw after 5 years since your RNOR status would have been expired by then.

4. 72T or Substantially Equal Periodic Payments

This is more or less like a reverse of EMI payments, you get into an agreement with IRS that you will withdraw an equal amount (calculated based on Life expectancy and other prevailing Interest rates) every year till your death or you wipe out your money. This is good because this doesn’t have any penalty even if you are less than 59.5 years.

The disadvantage is that you have to stick to this equal payments plan through out your life span. If there is any change in the plan and want to withdraw fully, you will have to pay the penalty for all the equal withdrawals you took till that time. So you can’t withdraw as lump sum without paying the penalty.

The other disadvantage is that you have to pay the tax for this withdrawal in India if the amount goes beyond Zero tax slab.

Since you will be withdrawing your retirement savings over multiple years/decades there is a risk of currency value fluctuations as well.


Hope this long post on 401k withdrawal strategies has helped you in providing some information for your withdrawal. Please note that the Tax laws change time to time, so always get more info on official government websites as well just as I explained in my disclaimer page. Please let me know if you are aware of or have used any other 401k withdrawal strategies in the comments section. I will update this post if I find any new strategies.

3 thoughts on “401K withdrawal strategies for NRIs

Leave a Reply