Moving to India? Smart 401(k) & Roth IRA Exit Strategy - For US H1B

🎯 Your Current Situation

  • You're on H1B with ~$30K–$50K in 401(k).
  • You’re planning to move back to India in 2025
  • You don’t need the 401(k) money urgently

🚫 What Happens If You Just Withdraw 401(k)?

  • ✅ 20% tax withheld (refundable with tax return)
  • ❌ 10% early withdrawal penalty (non-refundable)
  • You only get ~$35,000 if withdrawing $50,000
😬 You lose $5,000 forever, even if you have no income in the U.S.

✅ Option 1: Gradual Roth IRA Conversion Strategy

  • Move 401(k) → Traditional IRA → Roth IRA
  • Convert $12K–$15K per year starting 2026
  • Stay under the U.S. standard deduction ($29,200 if filing jointly)
  • Pay 0% tax on conversion each year
  • Withdraw principal anytime: ✅ No tax, ✅ No penalty
🧠 Let it grow tax-free in U.S. market, withdraw only when needed

✅ Option 2: Convert All at Once (Only If Needed)

  • Convert entire $50K in 2026
  • Pay ~$2,000–$3,000 in taxes upfront (reclaimable with standard deduction)
  • Withdraw principal any time
  • After 5 years, earnings are tax-free too (if over age 59.5)
✔️ Smart if you want to simplify and exit U.S. system quicker

📊 Comparison Table

ActionTaxPenaltyFlexibility
Withdraw 401(k)20% (refundable)10% (lost)High loss, quick cash
Roth IRA Conversion (Yearly)0% (with planning)NoneFull control, grows tax-free
Full Roth ConversionLow one-time taxNoneSimpler, better long-term

Indian Tax Angle

  • Report Roth IRA in Schedule FA of ITR
  • Principal withdrawals = Not taxed
  • Earnings (after 5 yrs and at 59.5) = Exempt under DTAA
  • If converted and withdrawn early, you only pay U.S. tax (not India)

📈 What If You Send the Money to India?

  • Invest in Indian mutual funds/FDs
  • All gains taxed in India (up to 30%)
  • Exchange rate impact (USD→INR ~₹83 today, may rise to ₹95+ in future)
✅ Keeping money in Roth IRA helps avoid Indian tax + enjoy stronger USD

📅 Suggested Yearly Plan

  • 2025: Return to India, leave 401(k) untouched
  • 2026: Begin Roth conversions (~$12–15K)
  • 2027-2030: Continue conversions under standard deduction
  • Withdraw principal if needed
  • After 59.5: Withdraw earnings tax-free

📌 Tips Before You Leave

  • Use Form 1040 + 8606 when filing U.S. taxes
  • Keep Roth IRA invested in index funds (like VTI, QQQ, etc.)
  • Don’t panic convert or withdraw in 2025
  • Stay organized for 5–6 years with simple tracking

📢 Final Thought

“Your Roth IRA is like a personal U.S.-based mutual fund with no tax — let it grow, let it sit, and use it when needed.”

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