Returning to India by mid-end of 2019, need 401k advice

Microsoft UMbR31
Mar 11, 2018 47 Comments

I maxed out 401k as long as I was with Microsoft (they pay 9k to 401k). I recently joined a bay area company. Job's great, they don't contribute to 401k tho, they provide some 401k account with a small financial institution, benefits seem to be none - just hold money pre tax.

I will sell real estate assets and investments in the US when I leave to India. Regarding 401k, I am uncomfortable leaving my money until I'm 60 (under 30 now) in a foreign country that could prevent anyone from entering at any point, but I am open to withdrawing over 1-2 years if there are huge tax benefits of doing so. Considering that I'm moving to India by mid-end 2019:

1. Should I continue to contribute to 401k like I did earlier? (Or just invest post tax money in US equities instead? Done decently okay - indexes seem to be doing great, trading account made 9.8% last 3 months)
2. If yes, do I continue to contribute into the Fidelity 401k account that Microsoft provided? Is that even possible from a different employer? Or do I start a new one with this small institution?

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TOP 47 Comments
  • Citibank oTcY13
    You have access to one of the greatest financial markets the world has ever seen. Leaving your money in place will allow you to grow your money exponentially over the next 30 + years (assuming you’re reinvesting dividends etc). People around the world would kill to have this opportunity. Leave it in place. Also continue to contribute. It’s a tax deferred account so you won’t need to worry about paying taxes on it until you’re withdrawing the money (assuming this is a traditional vs Roth IRA). You’ll also likely be subject to a 10% early withdrawal penalty if you take your money out before you’re 59.5 years. (Not sure of this given your situations). Just my two cents.
    Mar 11, 2018 7
    • Microsoft UMbR31
      OP
      I see, I'll definitely read up on that. Thanks.
      Mar 11, 2018
    • Oracle Newby
      But he would now pay tax from his own country because he would be Indian resident
      Mar 11, 2018
    • Google / Eng Hgjkv
      I don’t agree with citibank. Indias inflation is around 6-7%, the best you can from US stock market is 10% along with huge risk.

      Look at India stock market, it will very likely double in next 5 years and govt sovereign bonds (safest) in India give you 7% and they are tax free after 3 years, that is you don’t pay any taxes on gain. Point is safest option in India gives you 7% and riskiest option in US gives you 10%
      Mar 11, 2018
    • Citibank oTcY13
      True, but you have to weigh that against India’s inflation rate. They’re at 4.5% in a zero interest rate environment. Historically closer to 10%. Inflation is devastating to a portfolio.
      Mar 11, 2018
    • Google / Eng Hgjkv
      One reason you may want to keep 401k is you might be able to take loan for your kids if they planning on coming for education to US for BS or MS. I haven’t researched on it.
      Mar 11, 2018
  • Amazon AmazonSVP
    You really need to read the mad fientist blog and how to access your retirement funds earlier. Google Roth ira conversion ladder
    Mar 11, 2018 10
    • Amazon AmazonSVP
      Nooooooooo you missed on 25k+ à year hidden from the tax man. On the mad fientist blog, also read about the mega backdoor Roth ira. The 401k from Microsoft is eligible. But it's too late now
      Mar 11, 2018
    • Amazon AmazonSVP
      Actually not too late you can still put money from 2018 and 2019 in the plan
      Mar 11, 2018
    • Microsoft UMbR31
      OP
      I see, I'll check it out. Thanks 'SVP'. :)
      Mar 11, 2018
    • PepsiCo ykkf57
      SVP, thank you so much! This is gold!👍
      Mar 11, 2018
    • Amazon AmazonSVP
      No problem. You can pretty much do everything whitout paying taxes or very little. It's just a game you have to understand the rules.
      Mar 11, 2018
  • Oracle Marx Herd
    Consult a tax attorney. Call Fidelity at their retirement department. They are knowledgeable. Consider a rollover into an IRA. It is more flexible than a 401k on withdrawal reasons to avoid penalties, eg buying a home. Read pub 529 on IRS.gov. Look up India's tax rules on holding overseas accounts and if they give you a tax free window to bring in funds which are untaxed elsewhere. I see a giant Excel spreadsheet in your future. And good luck with your new chapter in India!
    Mar 11, 2018 2
    • Citibank oTcY13
      That’s probably the best advice.
      Mar 11, 2018
    • Microsoft UMbR31
      OP
      Thanks Marx Herd.
      Mar 11, 2018
  • Netflix abcabc123
    My general rule: leave the money in the account where it is growing until you actually need it.

    Do you have need for that money when you land in India? If you don’t then no pressing reason to liquidate imo.

    Secondly, when you no longer have US income, you will be in lowest income tax bracket that is the best time to withdraw with penalty from 401k. If you do it mid-late 2019 you are looking at higher tax bracket because you have income already that year. You may also withdraw with penalty slowly (spread over multiple years) to ensure you have income which is in lowest bracket each time you withdraw. Obviously depends on how much you have accumulated in 401k.
    Mar 11, 2018 3
    • Microsoft UMbR31
      OP
      Thanks man. I just realized it's a far more involved calculation than I had anticipated... :) I'm going to calculate exactly this
      Mar 11, 2018
    • Oracle Newby
      If he is in India he will pay Indian taxes on what he/she withdrawal
      Mar 11, 2018
    • Netflix abcabc123
      Check if you qualify on RNOR status.
      Mar 11, 2018
  • Lyft aJiI82
    OP, strongly recommend you read relevant posts from r2iclubforums.com. Most answers in this thread ignore your immigrant status, you can check various strategies for 401k based on immigrant status at r2,iclubforums.
    Mar 12, 2018 1
    • Microsoft UMbR31
      OP
      Thanks, will check it out
      Mar 12, 2018
  • Credit Karma / Eng CK-CK
    I am the same boat, not sure about the most tax efficient way to withdraw from 401k. But I am pretty sure I would rather take the money out than wait for 30 years. A lot of things can change over 30 years.
    Mar 11, 2018 1
    • Microsoft UMbR31
      OP
      But do you continue contributing to the 401k or keep investing in US equities or have started repatriating?
      Mar 11, 2018
  • Oath xdFq02
    For India a person more than 7 years in a foreign country - returning to India will be given RNOR status. They can enjoy NRI status 2-3 years more to bring foreign assets without tax implications. You may research on this to avoid double tax problem
    Mar 11, 2018 0
  • Oracle Newby
    If you let it there, make sure :

    1/ India doesn't tax those capital gains. Most likely they do and don't recognize 401k

    2/ when you withdraw your money from India look at the tax rate because you will be paying tax from there as you are an India resident. Here you are guarante to not go over 33%+10%+state tax.

    3/ say hi to headaches like double tax between the two countries
    Mar 11, 2018 3
    • Microsoft UMbR31
      OP
      Why would one be withdrawing money 'from' India? You mean, in the potential event of moving to a foreign country in the future?
      Mar 11, 2018
    • Oracle Newby
      Of you withdraw your 401k when you are an India resident then you are going to pay Indian taxes which might be higher than us?
      Mar 11, 2018
    • Couchbase stealth..
      1. If you withdraw in mid year, u maybe subject to taxation rules of both India and US (and potentially state of California). That is you could be US tax resident and India tax resident as well.
      2. If you have pre-tax 401k, and you come under California state tax then you will additional tax. So you could consider withdrawing next after you move to save on US taxes
      3. For India tax (India never explicitly said they will consider 401k with special status, it is just like an income source for their tax purpose ) residency rule check RNOR status rules..
      Mar 11, 2018
  • Citibank oTcY13
    Veet51, don’t forget about the exponential returns you’re leaving on the table. The loss of the future value of your money trumps 10 times over any potential tax consequences. Unless you believe this country won’t exist in 30 years leave it in place.
    Mar 11, 2018 3
    • Microsoft UMbR31
      OP
      Country and money will exist in place, we may not have access to it, that's the concern.
      Mar 11, 2018
    • Citibank oTcY13
      Good point. Well, you could leave a certain percentage behind to hedge in favor or access and take home the majority. it doesn’t have to be all or nothing.
      Mar 11, 2018
    • Microsoft UMbR31
      OP
      Yes
      Mar 11, 2018
  • Citibank oTcY13
    Yes all applicable taxes plus 10%. It’s a killer. Also, look at the history of this country. We’ve been through hell and back politically/economically and have always grown stronger. The world is interconnected like never before (which you all have helped with) making the world more interdependent and transparent than ever before. Leave it unless you absolutely need it.
    Mar 11, 2018 3
    • Microsoft UMbR31
      OP
      I see, all applicable taxes + 10% makes it a lot clearer man. If I leave the country in mid 2019, do I pay 10% + tax rate assuming my 401k to be annual income, when I withdraw the entire amount in 2020?

      I think we hold different opinions on US outlook man... Just drive 30 minutes outside any major city, you see people living in near dilapidated houses, their children have zero access to the future, their professional services jobs have gone to Mexicans and their six and seven white collar figure jobs are slowly going to Asians, Indians and Eastern Europeans. World might transparent and interdependent, but at the end of the day this country belongs to the hundreds of millions you see out of your window on road trips, and they've not been happy for a long time. To every man his own.
      Mar 11, 2018
    • Citibank oTcY13
      Unfortunately that is a very true statement. The thing that does concern me is the skyrocketing Debt/GDP ratio. That is the truest measure of fiscal health, and that number concerns me greatly. Everything else is just noise. (Sorry if that sounds incentive. I’m the poor immigrant blue collar kid that made it).
      Mar 11, 2018
    • Microsoft UMbR31
      OP
      True that. Debt to GDP ratio has been going up steadily for half a century now. I feel that as long as the US remains the biggest 'market' and biggest military force, that shouldn't be a big concern, but any of these could change in the future, you never know.
      Mar 11, 2018
  • Aon Hewitt qTXq04
    Anyone read Tony Robbins book on 401k and how is not worth it?
    Mar 11, 2018 2
    • Citibank oTcY13
      That guy is a block head. Has no business giving financial advice. Good person to look toward if you’re thinking about walking over hot coals or need advice on “visualization”. He feeds off of and profiteers from weak minded people. His fan club consists of dreamers that don’t want to get their hands dirty and do the work to execute.
      Mar 11, 2018
    • Citibank oTcY13
      Although, some of his advise, i assume, is good advice.
      Mar 11, 2018
  • Salesforce palmreader
    Read about sepp. It let's you withdraw penalty free
    Mar 11, 2018 0