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m2bangalore · Nov 27, 2010, 12:23 AM

Hello,

I am currently on H1 B visa, for 5 years now, and will be going back to india on 6th Jan. I will start my new job in India on 10th Jan. Need help on how to do my taxes, specially how to managme my 401K and stocks/options.

I have around $27000 in my 401K account. Since I would be moving out of US on 6th, I won't meet the SPT and so will be a NRA for 2011 tax year ( just have exemption amount with no standaed deduction)
1) So, should I withdraw my 401K or not?
2) if so, how should I phase it out.
3) Also, is it possible for me to withdraw 1/3 of amount in Feb 2011, 1/3 in Feb 2012 and 1/3 in Feb 2013? If so will I need to pay taxes in India for this withdrawl amount?

Also, should I be moving my 401K to an IRA or just take distributions from 401K directly? Does that make any difference?

I heard if moving back to India, we don't have to report US 401K withdrawl income in Indian income tax for 2 years, is this correct? If so, then will 2 years be Feb 2011 and feb 2012 or since Indian Tx cycle ends in March, so would two years be considered as Jan 2012 and Feb 2013?

AtlantaTaxExpert · Nov 27, 2010, 08:53 AM

1) Your company dictates whether you can retain the 401K or nt. If not, you can roll the money over into a traditional IRA. Charles Schwab will do this for you with little problem, and they cater to international clients.

I recommend you leave the money alone, be it in the 401K or in the rollover IRA, because you will have to pay U.S. income taxes on the any distribution PLUS a 10% Early Withdrawal Penalty.

I cannot comment on how the distribution will be taxed in India.

MukatA · Nov 28, 2010, 06:52 AM

If you do not plan to settle in the US, you may withdraw the entire 401K amount in 2011. It will be taxable in US.

To avoid paying taxes in India, you should withdraw it before March 31, 2011 as you will be nonresident in India for the year April 1, 2010 to March 31, 2011. For the year April 1, 2011 to March 31, 2012, you will be resident in India and must report worldwide income.

bharpola · Oct 15, 2011, 10:28 AM

Hello m2Bangalore,

Hope you had a good move back to India and enjoying there. I am exactly in the same situation right now like you a year before. I will be moving back to India sometime in December this year (2011). I have same question about 401K and IRA what you had a year back. Can you please share your experience with me? Can you guide me on that, what finally you decided and what should I do? I will really appreciate your help. Thank you so much in advance.

AtlantaTaxExpert · Oct 17, 2011, 08:03 AM

Bharpola:

My original post applies to you as well.