US NRIs Worry About 401K Accounts
US NRIs worry about their 401k accounts once they leave the United States. Now, there are many options available regarding these amounts of money.
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US NRIs Worry About 401K Accounts
Bobby Castro is the online editor at the NRI community, where he has published a number of articles about NRI Indians living in America and many other topics.
A common concern for US NRIs that have repatriated to India are the savings they have accumulated in their 401k accounts that remain in the United States. While many have their own plans, the following is the best way for repatriating NRIs to utilize these funds for their benefit.
The 401k plan is essentially a retirement plan where an individual contributes money each year into a plan chosen by the employer. The employer has an option to match the employee’s contribution to a certain limit or even pay equal to the contributions made by the employee. The contribution is given out of pre-tax dollars and the contribution is deducted from the taxable income for the year the contribution is made. The funds cannot be utilized until the contributor reaches sixty years of age. Withdrawals from the fund would be taxed according to the tax bracket and any premature withdrawal before the age of sixty would be taxable and an additional penalty would be imposed up to ten percent of the amount withdrawn.
Because many US NRIs return home before the age of sixty and the fear of the inability to return to collect on the amounts is what many NRIs fear about the utilization of the 401k. The following are the options available to the individual NRI with a 401k left in the United States.
Option 1. Leave the funds alone. In leaving the 401k as it is, the next option would be withdrawing the amount by the age of 60. There are two options though available in this option, the first being the restrictive structure of the funds. Because the employer chooses the plan, the individual can only benefit depending on that choice. The second issue would be the decision of the employer whether to offer the 401k and if the employer withdraws it, the employee would have to withdraw or rollover the 401k amount to an Individual Retirement Account.
Option 2. Rollover to an Individual Retirement Account. The traditional IRA works similarly to a 401k except that full control is given to the individual and no one else. With the IRA, the fund option would be more flexible for the employee especially with the management of the fund. There is also no tax implications when it comes to a 401k rolled over to a traditional IRA.
Option 3. Rollover to a Roth IRA. A Roth IRA is another type of retirement plan but the contributions are done after taxes. This means no deduction is done from the taxable income at the time of the making of the contribution. These contributions are also tax-free and only the earnings and dividends plus interest are considered taxable. When moving back to India it would be best to utilize a Roth IRA because the withdrawals at any time are considered tax-free. In a traditional IRA, mandatory withdrawals need to be done when reaching the age of seventy so the Roth IRA is better compared to other options.
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