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Other : Moving to India, Cashing 401 K

Discussion in 'Visa Bulletin and Priority Dates Retrogression Iss' started by BrainDrain, Dec 8, 2006.

  1. BrainDrain

    BrainDrain Registered Users (C)

    I will be moving to India with respect to the current retrogression.I know that there is a penalty involved in cashing the 401K and it could be about 30% that the balance gets reduced by with the penalty + tax.

    I would like to know if there may be any special provisions that anyone is aware of that may help ? I believe it would be nice to invest in India and have the money with me now rather than at an old age though it is meant for retirement.
  2. tusharvk

    tusharvk Registered Users (C)

    The money is with you regardless of whether you keep it in 401k or consider other options.
    you might look at self-directed IRA. You can open this account with a brokerage house and then invest the money anyway you want. it still will not be available to you before retirement age.
    If you are talking about investing in real estate in India, above is not an option.
    There is a possibility of taking loan against 401k to invest in real estate in US; not sure if this extends to real estate in India.
  3. EB2INDPD2005

    EB2INDPD2005 Registered Users (C)

    401 Cashing in

    If you are mvng 2 India, probably Indian Annual Pay will not be comparable to here.
    Unless ur 401K has a huge amount and you want to cash all at once, you will not have to pay 30% tax.,.. The penalty would still apply I guess.

    My thought is:
    1. Take out amount from 401k piecemeal in a few years.
    2. Take out only that much amount that would put your annual earning for that year below the taxable annual salary (US). (any withdrawal from 401k goes towards that particulars years earnings)

    hope that helps.
    good luck
  4. EB2INDPD2005

    EB2INDPD2005 Registered Users (C)


    Another thought...

    You probably would be paying a high Income Tax rate in India when you move to India..
    Talk to an accountant... maybe you can say that your tax amount is very high in India (compared to what you would be paying for the same pay in US), and something can be offset against the 30% tax rate

  5. techy2468

    techy2468 Registered Users (C)

    from what i know.....you have to pay 30% as soon as you want to cash.....no low income or anything is taken into consideration.....unless its an medical emergency or something...

    but of course if you dont want the cash now....you can manage your 401k remotely from india.....by diverting it to a agency which will let you direct your funds yourself.....till you reach retirement age...
  6. alterego2

    alterego2 Registered Users (C)

    Out of curiosity.

    What happens to those funds if you die before retirement age?
  7. indian_gc_ocean

    indian_gc_ocean Registered Users (C)

    before or after getting the greencard?
  8. gravitation

    gravitation Registered Users (C)

    If you withdraw funds before reaching 59.5 years of age, you pay 10% penalty. You WILL have to pay that. No way out.

    In addition, taxes will be due. If you take it out in the beginning of a year and leave (i.e. not have much income in that year), your taxes will be limited. Tax may be deducted and the time of withdrawal and you will get it back by filing tax returns. You could withdraw little bit every year to completely avoid taxes.

    You can borrow against it and invest it wherever. But the catch is that you MUST have a job in US and the loan payments will be taken off your salary. If you take a loan against 401k while on a job and then quit that job, all the remaining payments become due immediately and if unpaid will be considered withdrawal and subjected to penalty and taxes mentioned above.

    Withdrawn money- because it'll already be taxed in US- will not be taxable in India.

    If you die before reaching 59.5. Funds become part of your estate, available to the heirs, subjected to inheritance tax (aka death tax).

    Even the 401k money is actually invested and it grows tax-free. If you don't wanna manage it directly, just leave it in index funds.
  9. Jackolantern

    Jackolantern Registered Users (C)

    I presume you're talking about tens of thousands of dollars, right?

    Get advice from a tax professional who speciailizes in non-US citizens who relocate outside the US to figure out the best way to withdraw the money, and let them show you the applicable pieces of the tax code. Otherwise you could end up unnecessarily losing thousands of dollars.
  10. EB2INDPD2005

    EB2INDPD2005 Registered Users (C)

    401k Taxes

    Last year, I had a similar issue with my taxes in India and here. I contacted the person at www.workmytaxes.com
    I dont remember her name, but she was very helpful and saved me some money.

  11. BrainDrain

    BrainDrain Registered Users (C)

    This sounds like it may help.I will check this out.I will be withdrawing my money, if I do, in 2007 so the taxes will be paid/accounted for in 2008.

  12. rak1974

    rak1974 Registered Users (C)

    Hey, I withdrew my 401k last year and my 401k administrator deducted 30% of the amount for taxes and issued me a check for the rest. When I filed my taxes from a state that doesn't have state taxes(since that was the state from where I was living when making the withdrawal request) , I got back some money but we can't avoid 10% penalty. It is good idea to withdraw during the year when you will be in a lower tax bracket.

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