Do you guys contribute to a 401k? Anyone know how taxes work when withdrawing after moving back home?

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@OP - your idea is all fine and dandy except where you forgot to Wikipedia the fact that your 401k withdrawal doesn't work like your checking account. Withdrawals are one time lump sum and you take a hit based on your tax bracket. The only case would be if you fall below the taxable range in which case we are talking peanuts and it doesn't matter anyway

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Absolutely. Legitimate way of reducing taxable income and getting employer match. You just pay taxes on the year you withdraw and then wire them to your account in India

I guess my question is, what are the taxes we pay on withdrawal when we aren't in the US anymore. I know non resident aliens don't pay FICA taxes and if we reside outside the US, I'm guessing we don't pay state taxes either. So is it fair to say we are just paying federal+penalty to withdraw? Or is there a 30% flat rate on distributions

Did yo contribute for standard or Roth?

If your firm offers a Roth 401k, look into that. That's a better option if moving to India might be a possibility in the future. A traditional 401k will levy a 10% additional penalty for removing your money before retirement.

But even with the 10% penalty, aren't I coming out ahead as a NRA? Eg. Withdraw maybe 20k a year- federal tax will be about 10% overall. That's just 20% (10% fed+10% penalty on withdrawals??) Compared to a much higher tax bracket now

I contribute to a 401k, firm does offer Roth 401k

You're taxed as a resident alien after 5 years of paying taxes

You can transfer your Roth 401k to an IRA and keep the money even though you've moved to India.

You are a resident alien only if you pass the Green card test , substantial president test, or are an exempt individual. If one has to go back home, they will be neither of those 3. There's isn't anything about paying taxes for 5 years and being a resident alien

If you're paying taxes for 5 years, I'm assuming you pass the substantial presence test because you've been living in the US

I'm talking about when you leave the US, you aren't residing in the US anymore so don't pass any test. That's when I plan to withdraw my 401k- when I'm a non resident alien. And so my overarching question is that how are taxes levied on 401k withdrawals in this case.

You will be taxed based on what tax bracket you fall into when you leave. So if you're still an NRA, then you're fine. But if you're not, you'll be taxed at something hire than 30%

It's too big of a loophole if you can remove your 401k untaxed before retirement

401k withdrawals are lumpsum after you leave an employer, but if it is rolled over to an IRA, it can be withdrawn in smaller denominations right?

I think one should just NOT invest in 401k or RIRA if you have plans of moving back before 40. Instead, just remit that money to India and you will end up earning more interest

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