What Happens to Your 401(k)/IRA If You Move to India

Your 401(k) or IRA doesn’t do anything on its own when you leave the US. It just sits there, invested, and there’s no citizenship or residency requirement tied to holding it. What changes is how withdrawals get taxed, and that shift happens the moment your US tax residency status flips. Not on some date tied to your flight home.

What doesn’t change

• The account stays open. No provider closes a 401(k) or IRA just because you’ve left the country or lost visa status.
• It keeps growing if it’s invested. Your allocation isn’t forced to change because you moved.
• You pick the timeline. Leave it alone for years, roll a 401(k) into an IRA for more control, or start distributions whenever you want. (Required minimum distributions still kick in once you hit 73.)

What actually changes: withholding

Once you’re classified as a nonresident alien for US tax purposes, the default withholding on any 401(k) or IRA distribution jumps to 30%. The plan administrator applies this automatically, regardless of your real tax bracket. It’s a flat rate, not an estimate. On a $50,000 distribution, that’s $15,000 gone before you see a rupee of it.

The US-India tax treaty doesn’t hand you a blanket exemption on these withdrawals. Retirement distributions fall under the treaty’s other-income provisions rather than getting waved through entirely. But Article 20, which covers pensions and similar payments, lets periodic payments (regular monthly or quarterly distributions, not a lump sum) get taxed only in your country of residence if you file Form W-8BEN with your plan administrator and claim the treaty benefit. That means zero US withholding. The filing has to happen and the payments have to be structured correctly first. A treaty existing on paper doesn’t do the work for you.

A worked example

Deepa worked in the US for seven years on H1B, built up $180,000 across a 401(k) and a rollover IRA, and moved back to Bangalore for good. She’s now a US nonresident alien.

If she takes the whole $180,000 as a lump-sum cash-out, the plan administrator withholds 30% by default: $54,000, before she sees anything. She’s under 59½, so a 10% early withdrawal penalty applies too, stacked on top of whatever ordinary US income tax she owes once she files a 1040NR. This is close to the worst version of this decision.

If instead she sets up periodic payments and files Form W-8BEN to claim the treaty benefit, US withholding on those payments can drop to zero under Article 20, with the income taxed only in India once she’s a resident there. She skips the immediate 30% hit. But she still has to plan for Indian tax on the distributions, and she still owes the 10% early withdrawal penalty if she’s under 59½ and the payments don’t meet the IRS’s substantially-equal-periodic-payments test under Section 72(t).

Neither path avoids tax entirely. The real difference is $54,000 sitting with the IRS immediately, versus a smaller bill spread out and structured correctly.

The most tax-efficient default: do nothing yet

For most people in Deepa’s position, the cheapest move is also the least dramatic one. Leave the account invested, don’t touch it, and figure out a withdrawal strategy as retirement gets closer, ideally with a cross-border tax preparer who handles both US and Indian filings. Treating a 401(k) as something that has to be “settled” before you move is a common assumption, and an expensive one. The account comes with you whether you touch it or not.

Next step

If you’re still years out from this decision, our guide on how much you need to retire as an immigrant walks through planning a US-versus-India retirement number before you’re the one making this withholding call under time pressure.