Returning to India in the next few months. What to do with 401k

Microsoft HomeRun1
Apr 8, 2018 139 Comments

I have around 300k in 401k.
Returning to India in next 4-5 months. Can stretch to max Jan 2019.

I have below questions. Can anyone please take some time and respond to the best of their knowledge? Thank you for your time :)

1. What to do with 401k?

Option 1: take tax hit along with penalty and take out everything and invest the money in india in stocks or whatever. I will take out ~100k each year to get the least tax hit and avoid paying taxes in India

Option 2: keep it here and let it grow forever and withdraw only after I am 59 and half. I am 31 right now.

2. I want to go with option 2 but I am not sure how risky it is to keep money in US and being citizen of India living in India. Will I lose it all? Will they be safe forever?

3. Right now everything is invested in s&p provided by fidelity inside 401k. Do I need to convert it into ira once i quit or can I keep it in 401k even after I quit microsoft?

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TOP 139 Comments
  • Oracle Ojk3Yp
    To all those people who say go back to India.

    This is what happens when they go back. Instead of keeping the money in us economy they take it with them.

    If you morons really understood why immigrants are good for a country. But I know that is too much to ask from the Trumptards.
    Apr 8, 2018 10
    • Juniper / Ops shitposter
      yo birdbrain.. didn't you see the /s ?
      Apr 9, 2018
    • Facebook Lovenature
      @shitposter, you are nothing but shit
      Apr 9, 2018
    • Juniper / Ops shitposter
      no shit Sherlock
      Apr 9, 2018
    • Google / Eng whoami420
      Does nobody recognize what /s means? 😂
      Apr 10, 2018
    • Yahoo RjWx53
      No
      Apr 11, 2018
  • Google / Eng googmon
    Just withdraw $10-20k per year while living in India. You will hardly pay any tax and that goes pretty far to supplement your income in India
    Apr 8, 2018 10
    • New DuQvV7
      This is not good advice.

      100k/yr for 3 years will trigger 10% penalty plus US federal taxes. So you will end up with at most $70k of that money each year.

      Withdrawing 10k/yr will trigger tax penalty and NO Us Taxes (as long as this is your entire US income) so your cost is 1k/yr

      The best option is to do a 72T election of 10k/yr which waives the penalty and you end up with NO US federal tax. Though after year 3 (as notes) you have Indian taxes. I don’t know what those are like though.
      Apr 8, 2018
    • Highfive / Eng Omg1986
      Yeah they’ll first deduct and give you remaining . I did this few years back. They taxed almost 35% afair
      Apr 9, 2018
    • Apple
      SummerOf69

      Apple

      PRE
      AMD
      SummerOf69more
      Remember that you would become a non resident alien once you live outside USA for more than 180 days (unless you are already a US citizen). And non resident aliens have a flat 30% federal tax rate + state taxes while in India you will have a graduated scale. Do the math and see where you would make/lose money.
      Apr 9, 2018
    • Microsoft HomeRun1
      OP
      Flat 30%? That is only for FDAP income right? If I withdraw from my ira/401k as a non resident, will this money be considered fdap?
      Apr 9, 2018
    • Microsoft HomeRun1
      OP
      If what I read is right, money withdrawn from 401k is considered as income and hence should not be subject to 30% flat tax rate for a non resident
      Apr 9, 2018
  • New chadm
    Do you mind if i ask how long it took to grow to 300 thousand?
    Apr 8, 2018 4
    • Microsoft HomeRun1
      OP
      Around 7 years. I used to max out every year and get company match. Got a very good return too so it is kind of doubled of what I have contributed
      Apr 8, 2018
    • Microsoft BaconJam
      What fidelity fund did you choose? Your returns are way better than mine and I maxed it out and picked index funds too.
      Apr 10, 2018
    • Microsoft HomeRun1
      OP
      I kept changing throughout my life and had around 60-70% in brokerage link where I had tech etf + 30% of my portfolio had amazon since 2014. This 30% itself became huge and I sold everything early this year and put it in s&p index
      Apr 10, 2018
    • Microsoft BaconJam
      Thanks, OP. Amazon - that makes more sense.
      Apr 10, 2018
  • Amazon alienzone
    If I may ask what is the reason of returning back ?
    Apr 9, 2018 3
    • Microsoft HomeRun1
      OP
      Many reasons.
      1. Dad is really old and he needs me to be his side although he never mentions it. Its coz of them I reached where I am today so can’t run away from my duties when they need me the most.
      2. Our family is very connected and I have lots of cousins and friends and uncles and aunts. Want to go back and stay close to everyone and enjoy all the festivals and other stuffs together.
      3. Apart from my 401k, I also have 500k cash (sold me home and other investments) and I think the city where I am going that is more than enough for me to retire. I will work may be as a professor or something but definitely will take rest for first few years.
      4. I loved my stay in US but never had a feeling that this is where I want to stay forever. May be because of the strong bonding I and my wife have back in India.
      Apr 10, 2018
    • Amazon alienzone
      This is awesome...good luck for everything :)
      Apr 10, 2018
    • Apple LambdaCore
      Man.. you are really inspiring. I wish you all the best in all your endeavors. I wish I could know you in person and get some pointers since I am very similar to you.
      Apr 10, 2018
  • Amazon Throwaway5
    Option three. Roll it over to a traditional ira. Then convert to Roth ira using the Roth ladder conversion strategy and pay little to no tax
    Apr 8, 2018 7
    • Amazon / Eng MoonUnit
      The Roth ladder allows you to withdraw contributions. This is not a gain and not taxable
      Apr 8, 2018
    • Microsoft HomeRun1
      OP
      As far as i know income from foreign country( retirement income or not) is taxable once the initial 3 years are over
      Apr 8, 2018
    • Microsoft HomeRun1
      OP
      Yea I know I wont have to pay taxes here in US but I think once I transfer this to India I will have to pay taxes in India. Will find out more on this. Thanks:)
      Apr 8, 2018
    • Amazon NtXsHoDe
      I think as per double taxation treaty, social security/ retirement income is taxable only in the country it is given. For example Indian PF interest is not taxable in US
      Apr 9, 2018
    • Amazon / Mgmt
      opihi

      Amazon Mgmt

      PRE
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      opihimore
      Assuming the 401k is traditional and it was then taken out pre-tax, when you recharacterize to Roth IRA you have to pay taxes on all gains.
      Apr 10, 2018
  • Apple Elon Musk!
    When you are in RNOR status, make sure the last few days of that is when you sell everything you own within 401k and rebuy it the next day so that the price that day becomes your new cost basis within 401k. Now you only pay tax in India if there are any gains on top of that. So slowly withdraw $30k per year to either move to Roth to avoid 10% penalty or take 10% hit and move funds to India while paying almost no tax in USA
    Apr 8, 2018 15
    • Amazon NtXsHoDe
      Notwithstanding paragraph 1, and subject to the provisions of Article 19 (Remuneration and Pensions in Respect of Government Service), social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

      Indian PF is a social security scheme, and as per the US India DTAA Article 20, is not taxable by the US. The exact text says as under - the above

      This clearly states that any social security benefit paid by any of the two contracting states to a resident of the other contracting state is taxable only in the first mentioned state. In other words, US cannot tax Indian social security benefits (and vice versa). Therefore, you are liable for taxes only in India even though you have to declare to the US that you were given the social security (PF) benefit by India.

      All you have to confirm is whether 401k counts as social security benefit
      Apr 9, 2018
    • Amazon NtXsHoDe
      And whether in the DTAA the reverse applies
      Apr 9, 2018
    • Apple / Eng
      Marijuana

      Apple Eng

      PRE
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      BIO
      I ain’t got no worries.
      Marijuanamore
      Wait. Is that the reading? It’s paid by the US to a resident of India, so the way I’m reading it is that it’s only taxable in the US (that’s the first mentioned). What am I missing?
      Apr 9, 2018
    • Microsoft HomeRun1
      OP
      @elonmusk: I was checking the rules for tax filing for non resident in US and seems like I can not deduct standard deduction when I file 1040nr. And once I am in india I wont qualify as us resident. So when you say withdraw 30k and pay no us taxes, do you mean any other way than standard deduction? I believe most of that 30k is going to be taxable for me (although least bracket)
      Apr 9, 2018
    • eBay CEbi00
      @HomeRun1 did you figure out the final strategy ? Interested to know what was the final take on this ?
      Nov 8, 2018
  • Apple / Eng
    Marijuana

    Apple Eng

    PRE
    Google
    BIO
    I ain’t got no worries.
    Marijuanamore
    Do you have near-term uses for the money, such as buying property?

    If not, then consider keeping some of it in your 401(k) so that it’s USD-denominated. Roll them over, so you can withdraw in 5 years or later. In case your kids go to college in the US (if they are US citizens for example), you can use it to pay their tuition.
    Apr 9, 2018 5
    • Microsoft HomeRun1
      OP
      My kids are not US citizen since I never intended to stay here. But yes, may be in future they will come here for their bachelors or masters the way I came a decade back.

      And I do not think I have any near term use of this money. I was about to take it our from here and put in different tax advantaged account in india and rest in fixed deposit for years as this is my “retirement savings”
      Apr 9, 2018
    • Facebook Lovenature
      Congratulations on going back to India. Good that you made a firm plan to go back and following it till the end. I would say invest in buying land or at least in good reputed gated communities in India. Your money will grow in two to three fold in next 10 years. Indian real estate is market has so much growth potential considering population density in India irrespective of economic growth. So you would definitely get good returns compared to saving taxes and penalty here.
      Apr 10, 2018
    • Microsoft HomeRun1
      OP
      I do intent to buy properties in India and I am almost done with the process. But that I am doing with what I got after selling my house here. I want to keep this amount as cash in fd so that in case of emergency i can always take a dig here else it continues to grow marginally.
      Apr 10, 2018
    • Microsoft HomeRun1
      OP
      And thank you. I am happy that what I thought 9 years back is what I am doing now :)
      Apr 10, 2018
    • Facebook Lovenature
      Great. I am you in the middle of your nine years at present. It has been four years and still has strong desire to go back after four years. Of course majority think it is not a wise decision. Glad to find you here. I am sure I will not change mind and return.

      About your money, think putting half of money in mutual funds for better returns and half in FD if you already spent enough money in buying real estate assets. You can always liquidate mutual funds money for your needs.
      Apr 10, 2018
  • Microsoft Baniya
    Simple priorities

    P0. Put your money where it grow faster
    P1. Don’t screw up your savings to avoid taxes (taxes are paid by those who make money)
    P2. Don’t withdraw money if you don’t have investment plan
    P3. Source of money doesn’t matter if you have better investment plan which gives more returns

    Being a baniya (traditional money lenders in India) we put our money in others packet Because it grows there faster...
    Apr 9, 2018 1
    • Microsoft HomeRun1
      OP
      Yes right now i dont have any investment plans for this money so thought of just keeping it in fd in India.
      My only concern is once I am in india for few years, say 6 years from now, will I still be able to open the fidelity account and do transactions sitting in India the way I do from here today. I am just not feeling very comfortable leaving such a big chunk of my savings here in US
      Apr 9, 2018
  • Microsoft / Eng go1ds
    Op, you are an inspiration. I am from India and also have strong desire to go back with family. For me though the financial independence is important before moving back, I want to work on something I have passion for without expecting returns. The FI Number I have put is around 2.5 mil, wondering what is it that you have accumulated in 9 years that you feel safe to move back at this point. May be your plan is to continue working after going there hence do not need larger corpus?
    Apr 10, 2018 8
    • Microsoft / Eng go1ds
      2.5 mil for me and family to live good life (not really lavish but reasonable upper class) for 45 years (if I can make 41 target). Inflation and some conservative estimates is what needs this much higher amount per my calculation.
      Apr 10, 2018
    • Microsoft Tolls
      Eung, u moving to google India?
      Apr 11, 2018
    • Amazon hde876ff
      2.5mi target essentially means you may move when you get too old unless you are earning way too high like directors and all
      Apr 11, 2018
    • Google eung41
      Tolls - yes
      Apr 11, 2018
    • Microsoft HomeRun1
      OP
      @go1ds: Lot less than your target. Around 500k cash and 300k in 401k as I mentioned here. But I believe unless something dramatic happens, this should be enough for me to retire. I will ofcourse won’t retire but work on something else.
      Apr 11, 2018
  • Couchbase stealth..
    Hey, you have got the tax status correctly.. But there is another thing to consider: USD vs INR..
    Since you are moving to India and you say that you will live there for a long time, then your financial condition will be more tied to Indian economy, that is INR ($300k will have smaller effect on your financial well being in the long run).
    So,
    1) Option 1 will work better for you if your believe Indian economy is going to work better for you in the long run (I assume hence you are moving to India)
    2) Option 2 will work as a risk hedge should Indian economy perform badly compared to US economy.

    Tax and penalty of 10% are going to be smaller factors in the long run.

    So,
    1) Option 1 can contribute to financial well being in India, say like a strategic property investment in a growing Indian city OR
    2) you could have a risk buffer by going with Option 2

    Let us know when you decide on this:)
    Apr 9, 2018 4
    • Microsoft HomeRun1
      OP
      I had planned to keep all this in fixed deposits in India for my entire life ( if needed I would take out else hand it over to kids). I know fd is not best and you lost money due to inflation but I intend to go the safest route for this
      Apr 10, 2018
    • Couchbase stealth..
      So if you are planning to play safe, then it maybe good to keep some of the 401k US to play safe.
      And there is one more thing, since you have been in US for 7 yrs you might have paid social security tax for about 7-8 yrs. If you pay ssn tax for 10yrs then you are eligible for ssn retirement benefits from us govt, irrespective of whether you are citizen or resident or non resident. Have you thought about this ?

      And I read your reasons on going back, they sound very good. I had a question, do you plan to work for Microsoft in India or do some other thing ?
      Apr 10, 2018
    • Microsoft HomeRun1
      OP
      For now I dont plan to work for Microsoft in India coz its not in my home state. I think I will work as a teacher or something in my region. We dont have software engineering jobs where I am going
      Apr 10, 2018
    • Microsoft HomeRun1
      OP
      And I dint know about the 10 years ssn benefit thing but I don’t think that will change much. I will give another thought thouhh
      Apr 10, 2018
  • Microsoft Jdw
    You have to convert to ira. Don’t withdraw. Instead convert to Roth IRA upto the tax free amount every year (24k married filing jointly). You don’t have to repatriate from Roth account, but you can if you want to. You can withdraw your Roth balance after 5 years. This way you don’t pay tax as well as pay no penalty. Yes it takes 15+ years to get whole balance, but I think that’s better than paying 25% tax + 10+ penalty. Plus you get exposure to US market during that time,
    Apr 8, 2018 3
    • Salesforce PNlK41
      Could you explain more about this 401k rollover to Roth IRA tax free business? I've heard of backdoor Roth conversions but this sounds much better.
      Apr 8, 2018
    • Microsoft HomeRun1
      OP
      Standard deduction is not available for non residents. Is there any other way To not pay taxes on the first 24k?
      Apr 10, 2018
    • Google / Eng unusedname
      Yeah I am not sure why the conversion seems to be tax free
      Apr 12, 2018
  • Facebook IMUk87
    If you have kids and they are US citizens, maybe you can keep the money in US and let your kids inherit it
    Apr 9, 2018 1
    • Microsoft HomeRun1
      OP
      Fortunately or unfortunately they are not us citizens. But do you know if I can use this money to pay for their college tuition here provided they are international students?
      Apr 10, 2018
  • eBay CEbi00
    @HomeRun1 This is a long thread. Wondering if you had a chance to help summarize your experience based on your final research, so that it helps other folks as well to get factual info on this.
    Sep 22, 2018 0
  • Agilent Technologies ugg
    Op - only 75k of that money is yours (company match 50% and s&p 50%). So any amount of money you get over 75k is good and be happy for it.
    Apr 9, 2018 2
    • Microsoft HomeRun1
      OP
      Do you invest? I hope you donate all the profits you get from your investments to needy people and charity because hey, that money is not yours. You got it from your xyz investments.
      Apr 9, 2018
    • Amazon Finmin
      Want to double triple like your reply! Here is someone who is very inspirational in deciding to go back for all the right reasons and then there's these *******
      Apr 10, 2018
  • SanDisk curious27
    Do let me know what do you finally plan to do, even I am planning to move back in about 3 months. Though I dont have amount as big as yours. Mine is around 100k. I was thinking of withdrawing money over a period of 3 years. I dont see a good point in keeping all this money till 60. Property investments in India will get me more returns
    Apr 13, 2018 0
  • eBay CEbi00
    Wondering if OP can do AMA on this once he is settled
    Nov 15, 2018 0
  • Intel / Eng
    snowpie

    Intel Eng

    PRE
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    snowpiemore
    Roll over or keep it as is and wait till you are eligible to withdraw. Why do you need to do anything else with it? You're not going to lose it
    Apr 8, 2018 2
    • Medallia mShU83
      I agreed.. if you don’t need the money, just let it keep growing.. your not going to lose your money..
      Apr 8, 2018
    • Qualcomm / Eng Xiix
      OP said above- "I want to keep the money in US but since I don’t know whether I will be able to manage funds from back in India and if not whether I will be permitted to enter US again or not I better sell everything and take it with me. Risk factor associated with keeping money here is very high for me."
      Apr 8, 2018
  • Amazon Jdje345
    I would just keep in us so you can diversify your holdings. It was in a 401k which means you didn’t need the money . In India invest new money to India holdings . And then guy will have mix of us and Indian assets . When you say can’t manage it’s the sp500 you prolly didn’t manage the last 10 years what makes You think you will manage it next 30 who cares it’s just money . Look to the future not to past and in 30 years maybe you will remember and have 1mill in the banks
    Apr 9, 2018 1
    • Microsoft HomeRun1
      OP
      I did manage all these years. I moved it to s&p 500 just two years back when I decided that I am “really” going back. And yes once I move this money to India I wont do anything but put in fd. So definitely growth wise, it makes sense to leave it here. But I need lots of guts to convince myself to do that 😝
      Apr 10, 2018
  • Amazon 2nd best
    You should also consider the possibility of you deciding to come back to US. In that case keeping the money in US would make sense.
    Either way, hedging your bets across countries is a good idea. The fear of US blocking you from taking out your money is paranoia. For that matter it can happen in India to Indian citizen too, don't forget the demonetization scam.
    Apr 9, 2018 1
    • Microsoft HomeRun1
      OP
      Yeah these are very valid points. But for some reason I am scared enough to keep this here and leave. Coming back to US, may be I am not sure. It will depend on how my life goes once I am back home.
      Apr 10, 2018