Hi,

I am an Indian citizen who was employed in the U.S. on an F-1 visa with OPT and have collected around $10,000 in my 401 (k) plan. I have now been transferred by my employer to work in the U.K. and plan to retire in India. My question relates to how I can withdraw my money from my U.S. 401 (k) with minimum tax liability. What is Form W8BEN?

I have spent about 3.5 years in the U.S. on an F-1 visa and am considered a non-resident alien for tax purposes. I am about 22 years old - not too close to retirement.

Or, would it be a better option to rollover the plan into a U.K. Pension plan and then to an Indian plan when I move there? What would the tax implications of these be and how can I minimize this?

I would really appreciate the help.

Any withdrawal from 401K will be subject to 10% early withdrawal penalty and the entire withdrawal will be taxed as your ordinary income.
To save on early withdrawal penalty, wait till you are 59 1/2. Also if there is no activity in your 401K account, you may have to pay service charges.

Thank you for the prompt response. So that means, if I were to withdraw $10,000 in 2009 and have no other source of U.S. income in that year, I would pay only the 10% penalty and no other tax because the $10,000 is below the minimum taxable income level?

$10,000 will NOT be below the minum taxable levels, because you will NOT be able to claim the standard deduction.

The IRS has told me telephonically that you can open a rollover IRA to transfer the money from the 401K, Then you can manage the money from your home country and withdraw it once you hit 59.5 years of age to avoid the 10% Early Withdrawal Penalty.

Thanks for confirming. I saw your advice for SarahRajiv on the same sit (https://www.askmehelpdesk.com/taxes/401k-early-withdrawal-non-resident-32948.html)

And they said "We decided that best alternative for us was to not transfer to a pension fund here but to withdraw out of american 401K every year so that we would be below taxable income but lose the 10% penalty everytime. This would give us the most money, but in our pockets. Ofcourse you would need to file a W8BEN to make sure fidelity does not automatically withhold 20% on tax from this annual withdrawal. "

Would this be an option for me? If so, how would I go about doing this?

BlueFeather:

Several have posted doubts about opening 401K accounts because of the taxes owed and the 10% Early Withdrawal Penalty due when they would have to close the account upon the return to mtheir home country.

I called the IRS International Tax Hotline, and the IRS representative clearly stated that anyone with an ITIN could open a rollover IRA and manage it from their home country WITHOUT breaking any laws.

Some clients have had problems getting certain IRA custodians to open rollover accounts for them, so I emailed Charles Schwab. Their answer is below:

If foreign nationals have earned U.S. income and a tax identification number, they can rollover 401(k) assets to a Rollover IRA and even make a regular contribution to the account as well. They will retain the tax deferred status when they return to their home country. If they take a distribution, it will be taxable based on the U.S. tax treaty with their home country. It would be advisable for them to consult a tax advisor such as yourself, or one in their home country, to determine their tax liability in such a situation.

Also below is the email address I used, plus the Charles Schwab website.

https://www.schwab.com/

[email protected]

I hope you find this information helpful