[lalji]

Atlanta tax expert,

I am working on H1B visa and am investing in 401K. When I start withdrawing from 401K after moving back to my home country, will I get to deduct standard deduction and exemptions, assuming 401K withdrawal is my only income? Will I be subject to state taxes? I would appreciate a response. Thanks.

[AtlantaTaxExpert]

Yes, you will be able to claim your personal exemption on Form 1040NR.

No, you will NOT be allowed any standard deduction, as the return will be a non-resident return and you will NOT have any via status that allows for you to claim the standard deduction, which is permitted ONLY when you have either a F-1 or J-1 visa.

[lalji]

I am from India. Does India still have a tax treaty with US which allows me to get standard deduction? Thanks.

[AtlantaTaxExpert]

Again, getting the standard deduction is dependent on your visa status.

You MUST be under either a J-1 or Fi1 visa to qualify for the standard deduction. Otherwise, you are NOT eligible.

[lalji]

Thank you so much for your response.

1)If I have three dependents at age 59 and if I withdraw an amount equivalent to my annual exemption limit will I be liable for zero tax?
2) If I am laid off before I turn 59 and I move to my home country, can I withdraw from my 401k to buy a house or make a hardship withdrawal which exempts me to pay a penalty? Thanks.

[AtlantaTaxExpert]

1) Assuming you are filing FROM India as a non-resident alien, you will NOT be allowed to claim your dependents on the Form 1040NR.

2) The withdrawal for First Time Home Purchase without the 10% Early Withdrawal Penalty is limited to a max of $10,000 AND is allowed only by withdrawing from an IRA, NOT a 401K. Hence, you would need to rollo the money over into an IRA first.

[lalji]

Thank you for your response. Would appreciate if you could provide further clarification
1) So, when I file 1040NR, the only way to avoid tax is if I withdraw an amount equivalent to my exemption (approx: 3,500). However, is it advisable to withdraw most money before age 72 as after that I could be forced to withdraw resulting in higher tax bracket?
2) Do I still get penalty exemption even if I buy a home in India? Is it $10,000 per year?

[AtlantaTaxExpert]

1) Yes.

2) It is a ONE TIME exemption for $10,000.

[lalji]

If I keep transferring an amount equivalent of my personal exemption limit to Roth IRA every year after leaving US will I be subject to 10% penalty if I do this before 59 years of age?

[AtlantaTaxExpert]

Yes, unless you can show that you qualify for one of the exceptions (like paying for higher education, medical costs that exceed 10% of your income, etc.).

[lalji]

Am I allowed to withdraw the contribution amount from Roth 401K without incurring any tax or penalty if I withdraw 5 years after contributing the amount?

[AtlantaTaxExpert]

After five years, you CAN make selective withdrawals without penalty, as long as the withdrawals do not exceed what was contributed