Suppose I will leave US for good this year i.e. Sep 2006. Would it help if I wait a bit and request the entire 401k distribution on Jan 1 2007 instead of i.e. Sep 2006? I am 30 years old, H1B, and earn about 100K/Yr. My 401K balance is about 40K.

I am thinking that I will not have W-2 or other incomes next year. And I would pay less tax, if my only source of income related to US is 401k distribution? Is delaying the distribution for about 3-4 months a good idea? Can I still use Form 1040 for the next year when I am no longer in this country?

Regards,
rossw

RossW:

Delaying the 401K distribution until 2007 is an excellent idea. You would still have to file a 2007 tax return in early 2008, but that would be a 1040NR return.

The tax rate for $40,000 would be significantly less than for $140,000.

Does your home country have some type of tax-deferred retirement savings plans similar to the U.S. Individual Retirement Accounts? If so, you should investigate the possibility of rolling your 401K into one of these accounts. That will spare you paying the taxes completely.