- 5 min
What Happens to Your 401(k) When You Move Back to India?
Written by
Kashish Manjani
- Blog
- Financial Planning
Date
10 Nov 2025
Kashishmanjani
@Kashishaikeyam
YouTube
Kashishaikeyam
The complete guide for NRIs planning their return home
You’ve spent years building your career in the United States. You’ve contributed diligently to your 401(k), watched it grow, and counted on it as part of your retirement security. Now, as you prepare to move back to India, whether to be closer to family, pursue new opportunities, or simply return home, you’re facing a question that keeps many returning NRIs awake at night:
What do I do with my 401(k)?
The answer isn’t straightforward, and making the wrong choice could cost you thousands in unnecessary taxes and penalties. Let’s walk through everything you need to know to make the smartest decision for your unique situation.
Understanding Your 401(k): Why It Matters More Than You Think
Before we dive into your options, let’s recap what makes your 401(k) such a powerful wealth-building vehicle—and why you should think carefully before making any hasty decisions.
When you ask “what is a 401k in USA?”, here’s how it works
- It’s an employer-sponsored retirement savings in the U.S. that allows pre-tax contributions.
- Your contributions reduce your taxable U.S. income for the year, and your investment grows tax-deferred until withdrawal.
- Many employers offer matching contributions essentially “free money” added to your retirement corpus.
- You’ve likely accumulated a significant USD-denominated asset that provides natural currency diversification.
For someone who worked in the U.S. for 5-10 years, a 401(k) balance of $50,000 to $200,000 (or more) isn’t uncommon. That’s approximately ₹40 lakhs to ₹1.6 crores, a substantial portion of your retirement planning.
Your Three Options: A Detailed Breakdown
When you leave the U.S. permanently, you have three primary paths for your 401(k). Each has distinct advantages, drawbacks, and tax implications. Let’s examine them carefully.
Option 1: Leave Your 401(k) Untouched
This is the simplest option: do nothing and let your 401(k) remain with your former employer’s plan.
Advantages:
- Your money continues growing tax-deferred in U.S. markets.
- You avoid triggering any immediate taxes or penalties.
- Your investment remains in USD, providing a hedge against rupee depreciation.
Limitations:
- You cannot make additional contributions once you’re no longer employed in the U.S.
- Your investment choices are limited to whatever options your employer’s plan offers.
- Plan fees may be higher than alternatives like IRAs.
- Managing the account from India can be cumbersome, especially with time zone differences and limited customer service access.
- Many employer plans have service restrictions for non-U.S. residents. They may even force you to take a distribution if your balance is below a certain threshold.
This option works best if:
- You’re unsure about your long-term plans and might return to the U.S.
- You have a large balance and are satisfied with your current investment options.
- Your employer’s plan has low fees and good fund choices.
Option 2: Roll Over to an IRA (Most Recommended)
For most returning NRIs, this is the optimal strategy. A direct rollover from your 401(k) into a Traditional IRA gives you the best of both worlds: tax-deferred growth and significantly more control.
How the rollover process works:
- Before you leave the U.S., open a Traditional IRA with a reputable brokerage like Vanguard, Fidelity, or Charles Schwab.
- Request a direct rollover (also called a trustee-to-trustee transfer) from your 401(k) administrator to your new IRA.
- The funds move directly between accounts no taxes withheld, no penalty triggered, and no taxable event created.
Benefits:
- Your money continues growing completely tax-deferred.
- You gain access to thousands of investment options, low-cost index funds, ETFs, individual stocks, and bonds far beyond the limited menu in most 401(k) plans.
- You consolidate multiple old 401(k) accounts (if you had several U.S. employers) into one easy-to-manage IRA.
- You maintain a USD retirement asset that forms part of your globally diversified portfolio.
Should I Roll Over My 401k to an IRA? Key Considerations for NRIs
- Once you change your tax residency to India, U.S. brokerages have varying policies. Some will allow you to maintain your IRA and continue holding investments, but may restrict new purchases or trades; others may require you to liquidate and close your account.
- Before initiating the rollover, confirm with your chosen brokerage that they support accounts for non-U.S. residents. Some NRIs maintain a U.S. address for correspondence purposes, though this creates its own compliance complexities.
This option works best if:
- You plan to settle in India permanently or long-term.
- You want maximum investment control and flexibility.
- You value the ability to consolidate multiple retirement accounts.
- You’re willing to manage U.S. brokerage compliance.
Option 3: Cash Out and Repatriate
This option, withdrawing your entire 401(k) and bringing the money to India, seems simple but is almost always the most expensive choice.
Financial impact:
- The 401(k) is treated as a distribution in the U.S.—if you cash it out, it’s taxable income in the U.S., triggering withholding and possibly a 10% early withdrawal penalty (if you’re under 59½).
- Because you’ve moved to India, the amount you withdraw may also be taxable in India (though you can claim foreign tax credit under the India-U.S. DTAA).
Example:
Say you have $100,000 in your 401(k) and you’re 35 years old. If you cash it out you might receive only $60,000-65,000 after U.S. taxes and penalties—losing $35,000-40,000 immediately. Meanwhile, if you had left that $100,000 invested with conservative 7% annual returns until age 60, it could grow to approximately $500,000 (₹4+ crores).
So When Can You Withdraw From Your 401k Without Penalty?
- Your 401(k) balance is very small (under $10,000) where tax efficiency matters less.
- You have an urgent, unavoidable need for immediate liquidity.
- You’re certain you’ll never return to the U.S. and don’t value USD exposure.
For almost everyone else, cashing out destroys value unnecessarily.
Real-World Scenario: The IRA Rollover in Action
Let me walk you through how 401k works for a returning NRI
Meet Priya. She’s 38, worked at a tech company in California for 8 years, and built her 401(k) to $180,000. She’s moving back to Bangalore to be closer to her aging parents and pursue an entrepreneurial opportunity.
Here’s what Priya did:
- Three months before her move, she opened a Traditional IRA with Vanguard and confirmed they would allow her to maintain the account as an NRI.
- She contacted her 401(k) administrator and requested a direct rollover to her new IRA. The full $180,000 was transferred with zero taxes and zero penalties.
- She invested the IRA in a diversified portfolio of low-cost index funds (US Total Stock Market, International Stock Market, and Bond funds).
- Now, back in India, she reports the IRA as a foreign asset on her Indian tax return’s Schedule FA every year. The money continues growing tax-deferred. She plans to start taking withdrawals after age 59½, when she’ll pay U.S. taxes on distributions and claim credit in India under DTAA.
- Her $180,000 IRA is now an important pillar of her retirement plan, working alongside her EPF, PPF, and Indian market investments.
This strategy preserved her wealth, maintained tax deferral, and gave her global diversification.
After You Return to India: Compliance & Tax Essentials
Once you’re settled back in India, your 401(k) or IRA doesn’t just disappear into the background. You have specific obligations and considerations.
Tax reporting requirements:
You must declare your foreign financial assets in Schedule FA (Foreign Assets) of your Indian Income Tax Return. This includes your 401(k)/IRA balance, the income earned, and whether you have signing authority. Failure to report can result in penalties.
Understanding DTAA (Double Taxation Avoidance Agreement):
India and the U.S. have a tax treaty that prevents you from being taxed twice on the same income. When you eventually take distributions from your 401(k)/IRA, you’ll pay taxes in the U.S. first (typically through withholding). You then report this income in India and claim a foreign tax credit for the U.S. taxes paid. While this doesn’t eliminate all taxation, it prevents pure double taxation
Portfolio integration:
Your U.S. retirement account is now part of your global asset allocation strategy. It provides USD exposure, access to U.S. market returns, and geographic diversification away from INR-only investments. When working with a financial advisor, make sure they understand cross-border wealth management and can integrate your U.S. assets into your overall India-based financial plan.
Brokerage account management:
Update your U.S. brokerage with your Indian address and non-resident status. Be prepared for possible restrictions on new trading activity. Maintain proper documentation in case of future inquiries.
Estate planning implications:
U.S. assets may be subject to U.S. estate tax if your total worldwide assets exceed certain thresholds. Make sure your estate plan covers cross-border implications.
Decision Framework: Which Option is Right for You?
Here’s a quick reference to help you decide:
Choose “Leave it as is” if:
- You might return to the U.S. within 5-10 years.
- Your employer’s 401(k) plan has excellent, low-cost investment options.
- You’re comfortable with limited flexibility.
Choose “Rollover to IRA” if:
- You’re planning to settle in India permanently or long-term.
- You want maximum investment control and flexibility.
- You value the ability to consolidate multiple retirement accounts.
- You’re willing to manage U.S. brokerage compliance.
Choose “Cash out” if:
- Your balance is very small (under $10,000).
- You have an urgent need for liquidity.
- You’ve weighed the tax costs and still believe it’s worth it.
For the majority of returning NRIs, the IRA rollover strategy offers the best combination of tax efficiency, flexibility, and long-term wealth preservation.
Aikeyam’s Approach: Cross-Border Wealth Management Done Right
At Aikeyam Wealth, we specialise in exactly this kind of cross-border financial complexity because we understand that your wealth journey doesn’t fit neatly into one country’s financial system.
We help returning NRIs with:
- Strategic 401(k)/IRA planning before your move back to India timing matters, and we make sure you don’t trigger unnecessary taxes.
- Complete integration of your U.S. retirement assets into your India-based financial plan, ensuring proper asset allocation across currencies and geographies.
- Annual tax compliance support, including Schedule FA reporting and DTAA optimisation.
- Long-term withdrawal strategies that minimise tax friction when you start taking distributions.
- Estate planning for cross-border assets, protecting your family’s inheritance.
Most importantly, we understand the emotional side of moving back home. Your 401(k) isn’t just a financial account; it represents years of hard work in the U.S., sacrifices made, and career success achieved. We treat it with the respect it deserves.
Your Next Step: Get Clarity Before You Move
The worst time to make decisions about your 401(k) is when you’re already overwhelmed with visa paperwork, shipping logistics, and goodbye dinners. Start planning at least 3-6 months before your move.
Schedule a consultation with Aikeyam Wealth and we’ll:
- Review your specific 401(k) situation.
- Model out the long-term impact of each option.
- Create a personalised action plan.
- Guide you through the rollover process if that’s the right choice.
- Integrate your U.S. assets into your comprehensive India-based financial plan.
Your 401(k) deserves better than hasty decisions or generic advice from someone who doesn’t understand NRI complexity.
Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.