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If I leave US, how can I do a withdraw of my 401k without penalty?
Does anyone has experience in this? please share your advice. Thanks.

Is the following method gonna work?

1. Rollover 401k to a traditional IRA before I leave US.
2. Convert traditional IRA to roth IRA the next year after I leave US. (when I do the conversion, do they withhold tax on the conversion? or I file tax return that year, treating the conversion as my US income?)
3. Start withdraw five years later?

I am sure there are many people like me working in Us for several years and can't get green card and leave. How do you solve the 401k problem?
Thanks a lot!

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I am not sure if this will help, but there was discussion on similar topic before. Have a look: LINK

Thanks. I have read this post before, however, I am still confused because there is no definite conclusion can be drawn from that post.
Hopefully, there is someone can share his experience on this.

You probably want to talk to a person that specializes in this sort of accounting. You definitely want to check the terms of the 401K to verify that they will let you keep it there after you terminate employment. (some do, usually based on what your balance is -- some automatically create an IRA, and some send you a check minus 20%)

If they won't maintain it then convert it to prevent them sending you a check that may easily get lost -- as well as being difficult to cash in your home country. Sad to hear you have to go back after all the headaches of getting an H1B -- did you file for Dual Intent?

Any institution that does both traditional and Roth could answer the conversion process. If you DO get withheld then you have to make up the shortfall or pay taxes and penalties on that amount if you do replace it in an IRA.

There are conditions that allow you to remove it -- if you are buying a house even in your home country as a primary residence you can use the 401K as a down payment.

1. Rollover 401k to a traditional IRA before I leave US.
Do a rollover distribution; file tax as a US taxpayer, no witholding, no tax liability for the amount.

2. Convert traditional IRA to roth IRA the next year after I leave US. (when I do the conversion, do they withhold tax on the conversion? or I file tax return that year, treating the conversion as my US income?)

Convert and file as US person, you will pay tax on the amount but based on very low bracket since you will have no other US income. The key thing is if a non-resident alien can have a Roth IRA with all of it benefits.

3. Start withdraw five years later?

I have a similar issue as yours although I'm on an L1 and I have a pending GC application, but it is the reason I decided not to contribute to a 401k or an IRA. Even if you can get the money tax free out of your IRA, you might face a tax liability in your home country which in many cases would be worse than if you had just paid us taxes. It all depends on the bilateral agreements between your home country and the US.

yiqiao05 said: If I leave US, how can I do a withdraw of my 401k without penalty?
Unfortunately, if you do end up withdrawing the money, the penalty is due. I know several cases where the IRS has taken a stand that people on H1 and L1 visas always knew they had to leave one day since these are considered non-immigrant visas. Therefore, they should not have contributed into a 401k if they wanted to withdraw the money without penalties later. One way to rollover and withdraw would be when you are no longer a tax resident in the US and would therefore have a lower tax liability.

I don't know if this helps but I have a friend who was in the US for about 7-8 yrs with a 401k.
This Feb, he left the US to go back to his home country.
when I asked him about his 401k, he said he withdrew every penny of it.
according to him, his Y2008 US income will be very less and that puts him in a lower tax bracket.
he did not mind paying the 10% penalty.

So if I withdraw at Jan 2009, my 401k broker will automatically withhold 20% tax and 10% penalty? then I file tax return for 2009 and get almost all the 20% back?
Thanks for sharing the info!

Wait and use it when you retire.

gordita said: I don't know if this helps but I have a friend who was in the US for about 7-8 yrs with a 401k.
This Feb, he left the US to go back to his home country.
when I asked him about his 401k, he said he withdrew every penny of it.
according to him, his Y2008 US income will be very less and that puts him in a lower tax bracket.
he did not mind paying the 10% penalty.


don't forget he also doesn't pay the ~10% state income tax when he withdraws the money as a non-resident.
So that in itself cancels out the 10% penalty

The way it works is:
Assuming you are married and filing jointly,
you withdraw 10.5K every year. So, your annual income when you file returns is 10.5K and you dont pay any taxes on this amount(because the standard deduction is 10.5K for couples). I am not aware if there is a 10% penalty for 401k. I thought that was only for traditional/roth IRA .

If you withdraw more than 10.5K, you pay taxes on the amount greater than 10.5k. This works best if you limit the withdrawals to 10.5K.

Thanks!

So I just let my money stays in 401k and withdraw 10.5k every year and file for tax return to get the 20% tax withheld back? Can I still file for tax return when I am not in US? This 10.5k is still treated as my US income for that year, right?

Thanks a lot!!!

I asked all these questions to my 401k broker, they don't know anything about it. But every year there are so many H1B workers, some of them got to have the same problem.

NorthStar2020 said: The way it works is:
Assuming you are married and filing jointly,
you withdraw 10.5K every year. So, your annual income when you file returns is 10.5K and you dont pay any taxes on this amount(because the standard deduction is 10.5K for couples). I am not aware if there is a 10% penalty for 401k. I thought that was only for traditional/roth IRA .

If you withdraw more than 10.5K, you pay taxes on the amount greater than 10.5k. This works best if you limit the withdrawals to 10.5K.

Can you take standard deduction if you file as a non resident? I don't think so.

If you are going to India, Indian govt. taxes you on your global income, which means you will pay much higher indian taxes on the 10.5k. (Indian taxes are much higher than US for married+kids case).

Earlier, there was also a two year tax exemption on foreign income for returning indians. Don't know what is the latest now.

Best option would be to leave it here in US till retirement. Companies like Vanguard allow you to have a foreigh address for IRA a/cs.

NorthStar2020 said: The way it works is:
Assuming you are married and filing jointly,
you withdraw 10.5K every year. So, your annual income when you file returns is 10.5K and you dont pay any taxes on this amount(because the standard deduction is 10.5K for couples). I am not aware if there is a 10% penalty for 401k. I thought that was only for traditional/roth IRA .

If you withdraw more than 10.5K, you pay taxes on the amount greater than 10.5k. This works best if you limit the withdrawals to 10.5K.

Have the same issue. My plan is the following.
Rollover into a trat. IRA (no fee, no tax ..)
a slow rollover into a roth IRA up to the max of the tax free amount each year depending on your filling status.
after five year you can withdraw your in inial amount into the roth ira without penalty but earning have to stay or you have to pay the penalty (10%) on it.
Additional with more and more countries trying to get revenue from stock gains (capital gains tax....) it is smart to leave the money in an roth ira if you don't need it. nice legal tax shelter.....
JR



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