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Moving back to India with a 401(k) or IRA: your options and the US tax on each

Leave it, roll it over or cash it out: how the US taxes each once you live in India, what the India treaty's pension article covers, a $40,000 example, Roth accounts, estate tax and a checklist.

30% generally withheld from a US 401(k) or IRA payout to a nonresident alien, unless a treaty or graduated rates apply

By F1TaxReturn Tax Team. Published . Facts checked against the sources below on . 10 minute read.

In short

  1. US tax law lets a 401(k) or IRA stay where it is after you move to India: it is taxed when money is paid out, and a direct rollover to an IRA has nothing withheld.
  2. A payout from a US 401(k) or IRA to a nonresident alien generally has 30% withheld unless a treaty exemption applies, or you ask for graduated rates on the part from US work with Form W-8BEN or Form 8233.
  3. On Form 1040-NR, the part of a traditional 401(k) payout attributable to contributions for US work is taxed at graduated rates even in a year you live in India; the earnings generally go on Schedule NEC at 30%.
  4. Article 20 of the US-India tax treaty covers periodic pensions only: the IRS treaty table says India's pension exemption does not apply to a lump-sum payment.
  5. In this guide's example, a $40,000 traditional 401(k) cashed out in 2027 has $12,000 withheld; at 2026 rates the US tax is $6,352 before any 10% additional tax, so Form 1040-NR gets the excess back.
Contents, 12 sections

If you move back to India from H-1B or OPT, you can leave your 401(k) or IRA in place, roll it over or cash it out. The US still taxes traditional money paid to you as a nonresident alien, and the India treaty's pension article does not cover a lump-sum cash-out.

This guide covers the US side. For your last US return, see the tax checklist for leaving the US and the guide to US taxes for international students. For saving into the accounts, see the 401(k) guide and the IRA guide.

Can I keep my 401(k) or IRA after I move to India?

US tax law lets a 401(k) or IRA stay where it is after you leave: it is taxed when money is paid out. In a 401(k), "elective deferrals and investment gains are not currently taxed and enjoy tax deferral until distribution" (IRS 401(k) overview).

An IRA can stay open too: amounts from years you could contribute "can remain in your IRA" (Publication 590-A).

A plan can still pay out a small balance on its own. Once you have left the employer, a balance of $1,000 or less may be paid to you "without your consent" (IRS rollovers page). A somewhat larger one may be moved into an IRA in your name if you do not choose.

Whether a provider keeps an account with an address in India is its own rule, so ask before you leave.

Key facts

Withholding on a payout to a nonresident alien
30% of the US-source amount unless a treaty exemption applies; graduated rates on the part from US work if you give Form W-8BEN or Form 8233 first
Taxed at graduated rates on Form 1040-NR
The part of a traditional 401(k) payout attributable to contributions for US work after 1986, whether or not you are engaged in a US trade or business that year
Taxed at 30% on Schedule NEC
Generally the earnings, which are US-source if the plan's trust is a US trust
India treaty, Article 20
Periodic pensions and annuities only; no exemption for a lump-sum payment
How the payer reports it to you
Generally Form 1042-S, income code 15 (pensions, annuities, alimony and insurance premiums)
US estate tax return for a nonresident
Form 706-NA, if US-situated assets are worth more than $60,000 at death
For
H-1B workers and former OPT workers from India with a 401(k), Roth 401(k) or IRA who are moving back, or have moved back, and will be nonresident aliens of the US.
Not for
Advice on whether to withdraw or how to invest; any plan's or provider's rules for foreign addresses; how India taxes the payout; US citizens and green card holders.

What are my three choices, and what does each mean for US tax?

You can leave the money in the plan, roll it over directly to an IRA, or cash it out. For traditional (pre-tax) money, only a cash-out is taxed now; the other two wait until money is paid out.

Three choices for traditional 401(k) money when you move to India. Leaving it in the plan, or rolling it directly to an IRA, is taxed only when money is paid out. Cashing out has 30% withheld unless you claim lower, may owe a 10% additional tax before age 59 and a half, and gets no India treaty exemption.For traditional (pre-tax) money. Leave it in the plan: no US tax while it stays, and each later payout is taxed when it is paid. Roll it over directly to an IRA: no tax and nothing withheld on the move, taxed later when you take money out. Cash it out: taxed now; 30% withheld unless you claim a lower rate, contributions taxed at graduated rates on Form 1040-NR, earnings generally at 30% on Schedule NEC, and a 10% additional tax may apply before age 59 and a half. The India treaty does not exempt a lump-sum cash-out.Your 401(k) when you move to IndiaTraditional (pre-tax) money: three choices and the US tax on each1. Leave it in the planNot taxed nowNo US tax while it stays in the planEach later payout is taxed when it is paid2. Roll it over directly to an IRANot taxed nowDirect rollover: no tax, nothing withheldTaxed later, when you take money out3. Cash it outTaxed now30% withheld unless you claim a lower rateContributions at graduated rates on Form 1040-NREarnings generally at 30% on Schedule NEC10% additional tax may apply before age 59½The India treaty does not exempt a lump-sum cash-out.Three choices for traditional 401(k) money when you move to India. Leaving it in the plan, or rolling it directly to an IRA, is taxed only when money is paid out. Cashing out has 30% withheld unless you claim lower, may owe a 10% additional tax before age 59 and a half, and gets no India treaty exemption.For traditional (pre-tax) money. Leave it in the plan: no US tax while it stays, and each later payout is taxed when it is paid. Roll it over directly to an IRA: no tax and nothing withheld on the move, taxed later when you take money out. Cash it out: taxed now; 30% withheld unless you claim a lower rate, contributions taxed at graduated rates on Form 1040-NR, earnings generally at 30% on Schedule NEC, and a 10% additional tax may apply before age 59 and a half. The India treaty does not exempt a lump-sum cash-out.Your 401(k) when you move to IndiaTraditional money: three choices and the US tax1. Leave itNot taxed nowIn the plan: no US tax while it staysEach later payout is taxed when paid2. Roll it overNot taxed nowDirectly to an IRA: nothing withheldTaxed later, when you take money out3. Cash it outTaxed now30% withheld unless you claim lessContributions at graduated ratesEarnings generally 30% on Schedule NEC10% additional tax may apply before 59½The India treaty does not exempta lump-sum cash-out.
Only a cash-out is taxed in the year you choose.
  1. If you leave it in the plan, nothing is taxed while it stays. Each later payout is taxed as the next section explains.
  2. A direct rollover to an IRA is not taxed: "No taxes will be withheld from your transfer amount" (IRS rollovers page). Traditional money stays untaxed until you take it out, and a Roth 401(k) can go to a Roth IRA (IRS Roth FAQs).
  3. A cash-out of traditional money is taxed in the year you are paid, with tax withheld. Before age 59½, a 10% additional tax applies "unless an exception applies" (IRS), as the early withdrawal guide explains.

Before an eligible rollover distribution, the plan must give you "a written explanation" of your choices (Publication 575). If a payout comes to you instead, you have 60 days to put it in an IRA (IRS rollovers page). To roll over the full amount, you replace any tax withheld from other money.

How does the US tax a 401(k) payout once I live in India?

As a nonresident alien, you are taxed on a traditional (pre-tax) US 401(k) payout in two parts. The part attributable to contributions for your US work is taxed at graduated rates on Form 1040-NR, and the earnings generally at a flat 30% on Schedule NEC.

  1. Payouts for US work after 1986 "are effectively connected income to the extent attributable to contributions", "whether or not you are engaged in a U.S. trade or business" that year (Publication 519 (2025)). They go on Form 1040-NR, lines 5a and 5b (2025 instructions; the same lines on the 2026 draft).
  2. The earnings are US-source "if the trust is a U.S. trust" (Publication 515 (2026)). US-source pensions that are not effectively connected go on Schedule NEC, line 7, taxed at 30% unless a treaty lowers it.
  3. There is no standard deduction: "If you are a nonresident of the U.S., you cannot claim the standard deduction" (IRS). India's exception is for students and business apprentices.

Without a treaty exemption, the payer withholds "at the statutory rate of 30% on the entire distribution that is from sources within the United States" (Publication 515).

It may use graduated rates on the part from US work if you give it Form W-8BEN or Form 8233 "before the income is paid" (Publication 519). It reports the payout on Form 1042-S, income code 15 (2026 Form 1099-R instructions; 2026 Form 1042-S instructions).

You claim the tax withheld on Form 1040-NR, line 25g on the 2025 form and the 2026 draft. If tax was withheld, attach the Form 1042-S to the front of the return (2025 instructions).

For an IRA, Publication 590-B points nonresident aliens to the same withholding rules. No IRS text we found says how an IRA payout splits between the two parts, so ask a tax preparer.

A US state you have left cannot tax the payout once, under its own laws, you are neither a resident of that state nor domiciled there. Federal law bars a state from taxing "any retirement income", including 401(k) and IRA payouts, of a person who is not its "resident or domiciliary" (4 U.S.C. 114).

Does the India tax treaty exempt my 401(k) or IRA?

The India treaty does not exempt a lump-sum cash-out. Its pension article covers only periodic payments, and the IRS treaty table says that in India, "the exemption does not apply to a lump-sum payment".

Article 20(1) of the US-India treaty says a private pension "derived by a resident" of India from US sources "may be taxed only" in India. Article 20(3) defines a pension as "a periodic payment made in consideration of past services".

The Treasury Technical Explanation says "a single lump-sum payment does not qualify" and "would be treated as other income under Article 23". Article 23(3) lets the country where such income arises tax it too. IRS Tax Treaty Table 1 lists India's rate on pensions and annuities as 0%, with the lump-sum footnote quoted above.

Note

The 2025 Form 1040-NR instructions list the "additional tax on a qualified plan, including an IRA" among the taxes that make a nonresident alien file. They do not say how it applies to the part on Schedule NEC, and no treaty text we found says whether the treaty removes it. Ask a preparer.

What the US-India treaty texts say about a payout from a US 401(k) or IRA.
Payment What the texts say
One lump-sum cash-out Not an Article 20 pension; other income under Article 23, which the US may tax
A series of periodic payments May fit Article 20(1), taxable only in India; no text names a 401(k) or an IRA
Any payment while you are a US resident under the treaty Article 20(1) does not help: Article 1(3) lets the US tax its residents "as if the Convention had not come into effect"

Publication 519 lists a treaty claim on pensions among the cases that need no Form 8833. Before you rely on Article 20 for periodic payments, ask a preparer who handles US-India returns.

Article 21(2), which gives Indian students the standard deduction, applies only "during such education or training". It does not help once you have left your studies, as the India student treaty guide explains.

What would a $40,000 cash-out cost a former H-1B worker in Bengaluru?

If nothing lowers the rate, the plan withholds $12,000, or 30%, from a $40,000 cash-out. At 2026 rates, the US tax would be $6,352 before any 10% additional tax, so filing Form 1040-NR gets part of the $12,000 back.

Worked example: Arjun cashes out a 401(k) from Bengaluru in 2027

Arjun, an illustrative former H-1B worker, moves to Bengaluru in 2026 and is a nonresident alien of the US for all of 2027. That year, at age 32, they cash out a $40,000 traditional 401(k): $30,000 of contributions, including the match, and $10,000 of earnings. The plan's trust is a US trust, Arjun has no other US income, and they make no treaty claim.

Withheld at payout: 30% of $40,000 = $12,000. Arjun receives $28,000. A lump sum is outside Article 20, so no treaty rate applies.

Contributions part, at graduated rates with no standard deduction. The IRS had not published 2027 rates when we checked on October 29, 2026, so this uses 2026's (Revenue Procedure 2025-32). Tax: 10% of $12,400 = $1,240, plus 12% of ($30,000 minus $12,400) = 12% of $17,600 = $2,112. Total: $3,352.

Earnings part, on Schedule NEC: 30% of $10,000 = $3,000.

Before any 10% additional tax: $3,352 plus $3,000 = $6,352, which is $12,000 minus $6,352 = $5,648 less than was withheld. Even if the 10% reached all $40,000 ($4,000), the total of $10,352 would stay under $12,000.

Arjun gets the excess back only by filing a 2027 Form 1040-NR. With no wages "as an employee subject to U.S. income tax withholding" in 2027 (2025 instructions), it is due Thursday, June 15, 2028 (IRC 6072(c)).

Two other paths would have changed the numbers. Asking for graduated rates on Form W-8BEN before the payout can lower the withholding on the $30,000 (Publication 519). A direct rollover of all $40,000 to an IRA would have had nothing withheld or taxed in 2027.

What about a Roth 401(k) or Roth IRA?

A qualified distribution from a Roth 401(k) or Roth IRA is not taxed by the US. For a Roth 401(k), it generally comes "after a 5-taxable-year period" and at age 59½, death or disability, and "is not included in your gross income" (IRS Roth FAQs).

A Roth IRA payout is qualified after a 5-year period that starts with the first tax year for which you contributed to a Roth IRA (Publication 590-B). It must also come at age 59½, on disability or death, or for a first home (up to a $10,000 lifetime limit). Time in a Roth 401(k) "does not count toward the 5-taxable-year period" of a Roth IRA it is rolled into (IRS Roth FAQs).

Before that, the earnings part of a payout can be taxed, as the early withdrawal guide explains. How India treats a Roth payout is a question for an adviser in India.

Does the US estate tax reach my 401(k) or IRA?

The US estate tax can reach the US-situated assets of someone who dies as a nonresident who is not a US citizen. Their executor must file Form 706-NA if those assets are worth more than $60,000 at death (IRS).

The IRS gives US real estate, tangible personal property and stock of US corporations as examples. Neither that page nor the Form 706-NA instructions names a 401(k) or an IRA, so ask an estate adviser how yours is treated.

India is not on the IRS list of countries with an estate or gift tax treaty with the US (IRS, updated September 8, 2026).

Will India tax the payout too?

India may also tax a lump-sum payout: for "other income" the US may tax, the Technical Explanation says the residence country "may continue to tax". Article 25(2)(a) then has India allow, "as a deduction from the tax", an amount equal to the US tax paid, up to the Indian tax on that income.

How that works on an Indian return is a question for an Indian chartered accountant.

What should I do before I leave the US?

Most of this is easier while you still have a US address.

  1. Decide whether to roll over, and read the plan's written explanation before any payout.
  2. Ask each provider whether it keeps your account, and pays you, at an address in India.
  3. Give each provider your new address and check your beneficiary. Tell the IRS on Form 8822, which it says generally takes 4 to 6 weeks to process.
  4. Check that you can sign in to each account from India.
  5. Save your year-end statements showing contributions and earnings, your W-2s and any Form 5498. They help show how a payout splits between the two parts.
  6. Keep a US bank account in your name if you can: a Form 1040-NR refund by direct deposit goes to a US account, as the refund guide explains.

What to do next

  1. Once you are a nonresident alien, give each payer Form W-8BEN before any payment; while you are a resident alien, use Form W-9 (Form W-8BEN instructions).
  2. On Form W-8BEN, line 3 is your permanent residence address in India, not "a post office box, or an address used solely for mailing purposes". Give it to the payer, not the IRS (W-8BEN guide).
  3. File your 2026 return for the year you leave. With wages subject to US income tax withholding in 2026, it is due Thursday, April 15, 2027. A year split between resident and nonresident needs a dual-status return.
  4. Before you take money out, ask a preparer who handles US-India returns about the split, the 10% additional tax and Article 20. Ask an Indian chartered accountant about India. F1TaxReturn does not take Form 1042-S or Form 1099-R, so it cannot prepare a return with a payout.
  5. For a year with a payout and no wages subject to US income tax withholding, the Form 1040-NR is due June 15 of the next year. For a 2027 payout, that is Thursday, June 15, 2028.

Questions students ask

What happens to my 401(k) if I move back to India?

For US tax, nothing changes until money is paid out: traditional 401(k) deferrals and investment gains are not taxed until distribution, and an IRA can remain open in years you cannot add to it. You can leave the money, roll it over directly to an IRA, or cash it out. Whether a provider keeps an account with an address in India is its own rule, so ask before you leave.

How much tax is withheld if I cash out my 401(k) after moving to India?

Without a treaty exemption, the payer generally withholds 30% of the US-source amount (Publication 515). You can ask for graduated rates on the part from your US work by giving the payer Form W-8BEN or Form 8233 before the payment (Publication 519). The withholding is a payment toward your tax; your Form 1040-NR works out the real amount.

Does the India tax treaty make a 401(k) cash-out tax-free?

No. Article 20 defines a pension as a periodic payment, and the IRS treaty table says India's pension exemption does not apply to a lump-sum payment. The Treasury's Technical Explanation treats a lump sum as other income under Article 23, which the US may tax when it arises in the US.

Is a Roth 401(k) or Roth IRA payout taxed in the US after I move?

A qualified distribution is not included in US gross income, so the US does not tax it. For a Roth 401(k), qualified generally means after a 5-taxable-year period and at age 59½, death or disability. How India treats it is a question for an adviser in India.

Should I roll my 401(k) into an IRA before I leave?

We cannot choose for you. A direct rollover has no tax and nothing withheld, and the money stays untaxed until you take it out of the IRA. Ask the IRA provider first whether it keeps accounts for people living in India, and ask a tax preparer how an IRA payout is taxed for a nonresident alien.

Sources

This guide is checked against these 26 documents, most recently on .

  1. Publication 519 (2025), U.S. Tax Guide for Aliens, IRS
  2. Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities, IRS
  3. Instructions for Form 1040-NR (2025), IRS
  4. Form 1040-NR (2026 draft), U.S. Nonresident Alien Income Tax Return, IRS
  5. Schedule NEC (Form 1040-NR) (2025), IRS
  6. Income tax convention between the United States and India (1989), IRS
  7. Treasury Technical Explanation of the US-India income tax convention, US Department of the Treasury
  8. Tax Treaty Table 1 (Rev. May 2023), Tax rates on income other than personal service income, IRS
  9. Instructions for Form W-8BEN (Rev. October 2021), IRS
  10. Instructions for Forms 1099-R and 5498 (2026), IRS
  11. Instructions for Form 1042-S (2026), IRS
  12. 401(k) plan overview, IRS
  13. Rollovers of retirement plan and IRA distributions, IRS
  14. Publication 575 (2025), Pension and Annuity Income, IRS
  15. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs), IRS
  16. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs), IRS
  17. Retirement plans FAQs on designated Roth accounts, IRS
  18. Retirement topics: Exceptions to tax on early distributions, IRS
  19. Nonresident: Figuring your tax, IRS
  20. Revenue Procedure 2025-32 (2026 tax rates), IRS
  21. Some nonresidents with U.S. assets must file estate tax returns, IRS
  22. Instructions for Form 706-NA, IRS
  23. Estate and gift tax treaties (international), IRS
  24. Form 8822 (Rev. February 2021), Change of Address, IRS
  25. 4 US Code 114, Limitation on State income taxation of certain pension income, Legal Information Institute (US Code)
  26. 26 US Code 6072, Time for filing income tax returns, Legal Information Institute (US Code)