I have been working in the US (San Francisco) for 4+ years on an H1-B visa but am leaving permanently in October. What are the tax implications of this move? Also, I have $32,000 fully-vested in a 401k plan which I plan to cash in, what amount can I expect to be taxed from this? And is leaving the US permanently grounds for any exemptions? Any advice greatly appreciated.

Colinw:

When you cash in the $32K from your 401K, that tax-deferred $32K becomes taxable income in the year you take the disbursement. Further, a 10% early withdrawal fee will be due. For this reason, 20% will (by law) be withheld for income taxes and sent to the IRS. The 20% will not be enough to cover the actual taxes due (which will be somewhere in the 35 - 48% range), so the IRS may come looking for you through your home country government. Leaving the country does not exempt you from this tax. How successful they are depends on which government they are dealing with.

Now, you could transfer the money to a rollover IRA in virtually any US-based bank, brokerage house or mutual fund. The money can then grow tax-deferred until you retire. You may begin taking disbursements when you turn 59.5 years of age, but you MUST begin taking disbursements when you turn 70.5 years of age. Taxes will be due on these disbursements at that time at whatever tax rates then in effect.