If you are an Indian professional moving back to India after working in the US, you likely have a 401(k).
This article explains your options, how India taxes 401(k) withdrawals at each stage of your return, and the US Estate Tax risk you need to plan around.
Table of Contents
- Do I have to close my 401(k) when I move back?
- Should I withdraw my 401(k) or leave it as-is?
- Should I roll over my 401(k) to an IRA before leaving?
- How is my 401(k) taxed in India?
- What about the US Estate Tax?
- Common questions
- About Paasa
Do I have to close my 401(k) when I move back?
No. Your 401(k) is legally yours regardless of where you live. You can continue to hold it, manage the investments within it, and eventually withdraw from it in retirement, even if you never return to the US.
Once you leave your job, you cannot make new contributions to that specific plan. Your account goes into maintenance mode: the funds stay invested and continue to grow tax-deferred.
Should I withdraw my 401(k) or leave it as-is?
You have two options.
1. Leave it
If your account balance is over $5,000, most plan administrators will let you keep the funds in the existing plan indefinitely. Your money continues to grow tax-deferred, and you can withdraw it without the 10% early withdrawal penalty after you turn 59.5.
2. Withdraw the funds
You can liquidate the account at any time. If you do this before age 59.5, you face a flat 10% early withdrawal penalty on top of standard US income tax on the full amount.
Note: Leaving the money gives you tax-deferred growth but carries estate tax risk. Withdrawing incurs an immediate cost but gives you control and eliminates future US tax exposure. The right choice depends on your balance, your age, and how long you expect to hold US assets.
Should I roll over my 401(k) to an IRA before leaving?
Rolling over your 401(k) into a Traditional IRA is worth considering before you leave. A direct rollover, where funds move from your 401(k) custodian directly to an IRA custodian, is not a taxable event. No penalties apply. It consolidates your retirement savings, gives you more control over investment choices, and removes you from dependence on your former employer's plan administrator.
Make sure the rollover is direct. An indirect rollover, where the funds pass through your hands, triggers mandatory 20% withholding that you then have to make up out of pocket to avoid it being treated as a distribution.
What about a Roth IRA?
Rolling a traditional 401(k) into a Roth IRA triggers a conversion event: the amount converted is taxed as ordinary income in the US in the year of conversion. India does not have a Roth equivalent, and the India-US DTAA does not explicitly address Roth IRAs.
Once you become a full Resident (ROR) in India, the Indian tax authorities may treat Roth withdrawals as ordinary foreign income, even though you already paid tax on the contributions in the US. There is no definitive CBDT ruling on this point. Get advice from a cross-border tax advisor before converting.
How is my 401(k) taxed in India?
This depends on your Indian residency status at the time of withdrawal.
During RNOR: Withdrawals from your 401(k) are not taxable in India, provided you receive the funds in your US bank account first. This is the most tax-efficient window to make any large withdrawals. If you wire the proceeds directly to an Indian bank account, the income is treated as received in India and becomes fully taxable immediately.
To qualify as RNOR, you must have been an NRI for 9 out of the last 10 financial years, or have been physically present in India for 729 days or less in the preceding 7 financial years. This status typically lasts 1 to 3 years after you return.
After becoming Resident Ordinarily Resident (ROR): Under Article 20 of the India-US DTAA, retirement income from US pension plans is generally taxable only in the country of residence. Once you are a full ROR in India, your 401(k) withdrawals are taxable in India at your applicable slab rate, and the US should not withhold tax on those payments. You will need to file Form W-8BEN or equivalent documentation with your plan administrator to establish this.
Note: The practical application of Article 20 for 401(k) withdrawals to Indian residents is settled in broad strokes, but plan-level administration can vary. Confirm the withholding position with your plan administrator before you begin drawdown as an ROR.
For more information on what happens to your investments when you move back to India from the US, read our detailed guide on Returning to India from the US.
What about the US Estate Tax?
If you hold more than $60,000 in US-situs assets as a non-resident, including your 401(k), US stocks, and US-domiciled ETFs, your estate faces up to 40% US Estate Tax on the excess before your heirs can inherit. The exemption for non-residents is dramatically lower than the $13.99 million exemption that applies to US citizens.
The standard defence for returning NRIs is to hold long-term US equity exposure through Ireland-domiciled UCITS ETFs rather than US-domiciled ones. UCITS ETFs track the same indices (S&P 500, Nasdaq 100, MSCI World) but are not US-situs assets and fall outside the US Estate Tax net.
Read our detailed guide on how the US Estate Tax works for Indians and NRIs.
Common questions
Can I access my 401(k) from India?
Yes. Your 401(k) remains accessible from anywhere in the world. Withdrawals are sent to your designated bank account, which can be a US account.
What if my plan forces me out when I leave my job?
If your balance is under $5,000, some plan administrators can force a distribution when you leave your employer. Roll the funds directly into a Traditional IRA to avoid triggering a taxable event.
Do I need to report my 401(k) in my Indian tax return as an RNOR?
No. RNORs are exempt from Schedule FA and Schedule FSI. Once you become a full Ordinary Resident (ROR), your 401(k) balance must be declared in Schedule FA of your ITR each year. Read our guide on foreign asset disclosure requirements for RNORs.
Can I keep my US bank account to receive 401(k) withdrawals?
Yes, and you should. Section 6(4) of FEMA allows you to continue operating foreign bank accounts acquired while you were a non-resident. Receiving withdrawals into your US account preserves the RNOR tax exemption. If the same funds land directly in an Indian bank account, they become taxable in India immediately.
About Paasa
Paasa is a global investing platform built for Indian residents and returning NRIs. If you are moving back to India with a US portfolio and a 401(k), Paasa helps you carry your investments across without triggering a tax event
- Seamless in-kind transfers: Move your US stock portfolio from Schwab, Fidelity, Robinhood, or E*TRADE to Paasa without triggering a taxable event, so you stay invested through the transition.
- Cost basis reset during your RNOR window: Paasa helps you identify the right time to sell and repurchase to reset your cost basis before you become an Ordinary Resident, potentially saving you lakhs in future capital gains tax.
- Estate tax protection: Access to Ireland-domiciled (UCITS) ETFs, legally shielding your long-term investments from the 40% US Estate Tax that applies to non-residents holding US-domiciled assets.
