What to Do With Your 401k When You Return to India

The 3 options in detail

Option 1: Leave 401k in US (best for most)

The 401k stays in your US employer's plan or you roll it to a Traditional IRA at Fidelity/Schwab before leaving. The account grows tax-deferred indefinitely. You withdraw at 59.5+ and pay US income tax.

Setup for non-residents at Fidelity:

• Fidelity allows non-resident clients to maintain IRAs
• Update your address to your India address
• File W-8BEN (or W-8BEN-E) to notify Fidelity of your non-resident status
• Withholding on US distributions as a non-resident: 30% (or reduced under DTAA)

DTAA Article 20: Under India-US tax treaty, pension income is generally taxable only in the country of residence when received. If you're an Indian resident when you withdraw, India may tax it — but the RNOR strategy avoids this.

Option 2: Roll 401k to IRA before leaving

Why roll: More investment options (Fidelity has 10,000+ funds vs. typical 401k's 20-30 options). Easier management from India. Consolidate all old 401k accounts into one IRA.

How to roll:

1. Open Traditional IRA at Fidelity or Schwab
2. Contact each 401k provider: request "direct rollover" to IRA
3. They wire money directly — no tax withholding on direct rollovers
4. Do NOT take a distribution check (20% withheld and 60-day rollover window)

What to invest in after rolling: FSKAX (Fidelity Total Market) or VTI (Vanguard Total Market). Set and forget.

Option 3: Roth conversion ladder before leaving

If you have a Traditional IRA/401k and expect to be in a lower tax bracket after returning (RNOR period), consider:

1. Roll 401k to Traditional IRA (tax-free)
2. Convert a portion to Roth IRA each year — pay tax in the US at your bracket
3. The Roth grows tax-free forever
4. After 5 years from conversion, withdrawals are fully tax-free

Best if: You have 3-5 years before returning. You can convert $50-100K/year while still in the US, paying 22-24% US tax, locking in tax-free Roth withdrawals for life.

The Rs 50 lakh question

Many H1B returnees ask: "Should I bring my 401k money to India?"

Usually no. The US dollar has structurally outperformed the rupee. Keeping your 401k invested in US markets (via IRA) gives you:

• USD-denominated wealth (hedge against rupee depreciation)
• US market returns (S&P; 500 20-yr average: 10.2%/yr)
• Withdrawal flexibility under RNOR/DTAA

FIRPTA and account closure

FIRPTA (15% withholding) applies only to real estate transactions, not 401k or IRA accounts. No FIRPTA on 401k distributions.

Watch the returning to India video →