I am a tax preparer working with some Indian clients who are here as visiting professors/researchers. While working at the local university they were participating in the 401A program. When they left the university and the country to return to India they took a total distribution of the 401A account. What taxes (if any) must be paid on the distribution?

Assuming the retirement program is tax-deferred, they will pay normal income taxes plus a 10% Early Withdrawal Penalty.

The fact that their salary was tax exempt is irrelevant to the tax treatment of the early distribution.