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.

None of this applies just because you moved. Becoming a nonresident alien for tax purposes generally means either you never held a green card and you’ve stopped meeting the Substantial Presence Test, or you held a green card and formally relinquished it (Form I-407). If you still hold a green card, you remain a US tax resident taxed the same as if you lived in the US — you file a W-9, not a W-8BEN, and standard withholding rules apply. There’s one narrow exception: under IRS Publication 519, a green card holder who is also a tax resident of India under Indian law can claim nonresident treatment for US income tax under the treaty’s residency tie-breaker provision, filing Form 1040-NR with Form 8833 attached. This is a specific, deliberate election with real consequences, not a casual option — it can trigger the Section 877A expatriation tax if you’re a long-term resident (a green card holder in 8 of the last 15 years), and it has its own filing requirements. It’s not something to back into by assumption; talk to a cross-border tax preparer before relying on it.

For an actual nonresident alien, how the treaty treats the distribution depends on how it’s paid, and this is where a lot of explanations (including earlier versions of this one) get muddled:

• A lump-sum withdrawal generally falls under the treaty’s “Other Income” article, which does not give India exclusive taxing rights — the US can still tax it, and a lump sum doesn’t get the pension article’s relief.
• Periodic payments (regular, recurring distributions — not a one-time cash-out) can qualify under the treaty’s pensions article, which taxes a private pension or annuity only in your country of residence. If you file Form W-8BEN with your plan administrator and properly claim this benefit, US withholding on those periodic payments can drop toward zero.

The filing has to happen, the payments have to be genuinely periodic, and you have to actually be a nonresident alien — three separate conditions, not one. A treaty existing on paper doesn’t do the work for you, and a green card sitting in a drawer in Bangalore doesn’t make you an NRA.

A worked example

Deepa worked in the US for seven years on H1B — never a green card — built up $180,000 across a 401(k) and a rollover IRA, and moved back to Bangalore for good, passing the point where she fails the Substantial Presence Test. She’s now a genuine US nonresident alien, which is what makes the comparison below work; it would not work the same way if she’d held and kept a green card.

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. A lump sum falls under the treaty’s other-income article, not the pension article, so the treaty doesn’t change this outcome. 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’s pension-article benefit, US withholding on those payments can drop toward zero, 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.