Returning NRI Guide
Your 401(k) & IRA When You Return to India
Moving back to India with a US retirement account? How and when you withdraw decides whether you keep most of it — or lose a slice to both tax systems. Here's how the RNOR window, Section 89A and the India-US treaty fit together.
Updated for AY 2026-27.
When you move back to India, nothing happens to your 401(k) or IRA by default — it stays with your US broker and keeps growing. But how and when you withdraw decides whether you keep most of it or lose a large slice to two tax systems at once. Three tools protect it: the RNOR window, Section 89A, and the India-US tax treaty.
Why this is genuinely complicated
A US retirement account is taxed on opposite principles in the two countries. The US taxes it only when you withdraw. India, by default, taxes income as it accrues year by year. Left unmanaged, that mismatch can mean India taxing your account's growth annually while the US taxes the same money later at withdrawal — tax on the same gains, in the wrong years, in both places.
This is why a US retirement account needs deliberate handling on return, not neglect. The good news: the law now provides a fix, and the timing of your move gives you a window to plan.
Traditional vs Roth: the difference that changes everything
Before going further, it helps to know which kind of account you have, because the two are taxed on opposite logic — and India treats them very differently.
- Traditional (401(k) or IRA) — you contributed pre-tax dollars, so you got a US tax break going in. The deal: you pay tax when the money comes out. Both the US and India can tax those withdrawals.
- Roth (401(k) or IRA) — you contributed post-tax dollars, having already paid US tax on that money. The deal: qualified withdrawals are completely US-tax-free, growth included.
In the US, the choice is simply "pay tax now or pay tax later." The complication is what happens when you move to India.
| Traditional | Roth | |
|---|---|---|
| Money going in | Pre-tax (US deduction now) | Post-tax (already taxed) |
| US tax on withdrawal | Taxed as income | Tax-free, if qualified |
| India tax once ROR | Taxable — often the whole withdrawal | Unsettled — India may still tax it |
| RNOR-window withdrawal | Generally India-tax-free | Generally India-tax-free |
| Section 89A / 158 relief | Fits cleanly (US taxes withdrawal) | Grey area (US doesn't tax it) |
| US forced withdrawals (RMD) | Yes, from age 73 | None in your lifetime |
The Roth grey area. A Roth is US-tax-free — but India may not recognise that tax-free status. Worse, the main Indian relief (Section 89A) is built around the idea that the other country taxes the withdrawal; for a qualified Roth, the US never does, so there's arguably nothing for the relief to attach to. Practitioners genuinely disagree and there's no settled Indian ruling. If most of your US retirement wealth sits in a Roth, this is not a DIY decision — get written advice from a CA who has handled Roth cases.
The words you'll keep seeing
US retirement accounts come loaded with jargon. Here's every term used on this page, in plain English:
- Contribution — money you put into the account while working.
- Distribution / withdrawal — money you take out. This is the taxable event for a Traditional account.
- Qualified distribution — a withdrawal that meets the US rules to be penalty-free (and, for a Roth, tax-free): generally after age 59½ and, for a Roth, after the account is at least 5 years old.
- The 5-year rule — a Roth must have been open five years before its earnings can come out tax-free, regardless of your age.
- 59½ — the US age threshold. Withdraw before it and you usually face a 10% early-withdrawal penalty on top of tax.
- RMD (Required Minimum Distribution) — the US forces you to start withdrawing from a Traditional account at age 73, whether you need it or not; missing it carries a steep penalty. (Roth IRAs have no RMDs in your lifetime — one reason some prefer them.)
- Rollover — moving money from one retirement account to another (say, 401(k) to IRA) without it counting as a withdrawal.
- Trustee-to-trustee transfer — a rollover done directly between the two institutions, so the money never passes through your hands. This keeps it tax-free.
- Conversion — moving money from a Traditional account to a Roth. You pay US tax now, in exchange for tax-free Roth withdrawals later.
- Vesting (employer 401(k) match) — how much of your employer's contributions you've earned the right to keep. Your own contributions are always yours.
The RNOR window is your friend
For the first two to three years after you return, you're typically RNOR — Resident but Not Ordinarily Resident — and during that time your foreign income stays outside India's tax net. That has a powerful consequence for retirement accounts:
- Withdrawals made while you're RNOR are generally not taxable in India. If you need to draw down, the RNOR years are usually the cheapest time to do it, on the Indian side.
- It's also the window in which some people convert a Traditional account to a Roth — India taxes none of it during RNOR, and future qualified Roth withdrawals are US tax-free.
Because the window closes on a date you can calculate in advance, it pays to know exactly how long yours lasts before you make any move. Confirm your status first.
Section 89A: matching the two tax systems
Once you become ROR, India would ordinarily tax your account's annual growth even though you haven't touched the money — the accrual problem. Section 89A (renumbered Section 158 under the Income-tax Act 2025, in force from the 2026-27 tax year) lets you switch India onto the same basis as the US: tax only on actual withdrawal, not annual accrual. The two taxable events then line up, and you can use the treaty's Foreign Tax Credit (via Form 67) to offset US tax already paid.
The election is Form 10-EE, and the timing is unforgiving. It must be filed before you file your return, by the due date, in your first ROR year. File your return first and the deferral for that year is gone. The election is also a first-year choice and, once made, irrevocable for that account.
The trap most people miss
Section 89A fixes the timing, but it introduces a catch on the amount. Because a Traditional 401(k) or IRA was funded with pre-tax dollars, when you withdraw as an Indian resident, India can tax the entire withdrawal — principal and growth — not just the gains. The Foreign Tax Credit for US tax paid softens the double-taxation, but the full amount entering the Indian tax base surprises people who assumed only the profit was taxable.
This is exactly why the sequence and timing of withdrawals — RNOR versus ROR, lump sum versus periodic — matters so much, and why it's worth modelling properly before you act.
Your four options on return
There's no universally right answer — it turns on your age, your RNOR timeline, whether you might return to the US, and how much you need the money now.
| Option | What it means | Suits |
|---|---|---|
| Keep it invested | Leave it with your US broker, growing tax-deferred; draw down later, ideally after age 59½. | Most people; those not needing the cash now |
| Roll to an IRA | A trustee-to-trustee transfer from 401(k) to a Traditional IRA — not a taxable event — for more investment choice. | Those wanting flexibility and control |
| Roth conversion | Convert Traditional to Roth during RNOR, when India taxes none of it; pay US tax now, ideally in a low-income year. | Younger returnees with a long horizon |
| Withdraw | Draw the money out — cheapest on the Indian side during RNOR; watch US withholding and penalties. | Those who need the funds, timed carefully |
Don't forget the US side
India is only half the picture. On the US side:
- The US withholds 30% by default on distributions to non-residents. Filing Form W-8BEN with your plan administrator claims treaty benefits and can reduce that.
- Withdrawals before age 59½ generally trigger a 10% IRS early-withdrawal penalty on top of income tax.
- Treaty Article 20 can protect periodic pension-style payments in a way a single lump sum does not — so cashing out everything at once can forfeit protection that structured withdrawals keep.
- Set your withdrawal structure up before you leave the US, while you still have easy access to your plan administrator.
And the reporting: Schedule FA
Once you're ROR, your US retirement account must be disclosed in Schedule FA of your Indian return every year — whether or not you withdrew anything. While you're still RNOR, Schedule FA doesn't apply, but keep every statement: when you become ROR and file Form 10-EE, you'll need to quantify the growth that accrued during your RNOR years, going back to when you opened the account.
Why this one really needs a specialist
Wealth North helps you understand the landscape and plan the sequence, but this is the area of cross-border tax where a generalist is not enough. The interaction of Section 89A, the India-US treaty, US withholding, PFIC rules and the irrevocable Form 10-EE election is genuinely contested territory, and the first-year deadlines are unforgiving. Before you move money, get advice from a cross-border tax specialist who handles US-India returns. The cost of good advice here is trivial against the sum at stake.
Which option fits your situation?
There's no universally right answer for a 401(k) or IRA on return — it turns on your age, your RNOR timeline and your plans. Answer five questions to see which of the four paths are worth exploring.
Your situation
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Options are rated as a starting point for a conversation with a specialist — not a recommendation.
This is an educational starting point, not financial or tax advice. It applies simple rules of thumb and cannot account for your full picture — US tax brackets, PFIC rules, the 5-year Roth rule, RMDs, and the unsettled Indian treatment of Roth accounts all matter. Cross-border retirement decisions are high-stakes and largely irreversible; confirm any move with a qualified US-India tax specialist before acting.
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Returning NRI Guide
Frequently Asked Questions
How your 401(k) and IRA are taxed when you return to India — the RNOR window, Section 89A, Form 10-EE and the treaty.
By default, nothing. The account stays with your US broker and keeps growing tax-deferred — the IRS does not require you to close it. What matters is how and when you eventually withdraw, because that is what determines your tax across both countries.
It depends on your residential status. While you are RNOR, withdrawals are generally not taxable in India. Once you become Resident and Ordinarily Resident (ROR), the account falls within India's global-income net, and withdrawals are taxable — with a Foreign Tax Credit for US tax already paid.
Because India taxes income on an accrual basis by default, while the US taxes retirement accounts only on withdrawal. Left unmanaged, India could tax your account's annual growth while the US taxes the same money later — a timing mismatch that Section 89A exists to fix.
It is the relief that lets you align India's taxation of a foreign retirement account with the country where it is held. Instead of taxing annual accruals, India taxes only on actual withdrawal — matching the US — so the two taxable events line up and the treaty credit works cleanly.
Form 10-EE is how you elect Section 89A relief. It must be filed on the e-filing portal before you file your return, by the due date, in your first year as ROR. File your return first and the deferral for that year is lost. The election is also irrevocable once made for the account.
For a Traditional 401(k) or IRA funded with pre-tax dollars, India can tax the entire withdrawal — principal and growth — when you draw it as a resident, not just the gains. The Foreign Tax Credit reduces double taxation, but many people are caught out expecting only the profit to be taxable.
Because during RNOR your foreign income is outside India's tax net. Withdrawals made while RNOR are generally India-tax-free, and it is the window some people use to convert a Traditional account to a Roth with no Indian tax on the conversion. It typically lasts two to three years.
It can be the cheapest time on the Indian side, but it is not automatically right — US withholding, the early-withdrawal penalty and treaty protection all still apply, and drawing down early sacrifices future tax-deferred growth. It is a decision to model with a specialist, not a default.
Broadly four: keep it invested with your US broker, roll it into a Traditional IRA for more flexibility (not a taxable event), convert to a Roth during RNOR, or withdraw. The right one depends on your age, your RNOR timeline, whether you might return to the US, and your need for the cash.
The US withholds 30% by default on distributions to non-residents. Filing Form W-8BEN with your plan administrator claims treaty benefits and can reduce that. Withdrawals before age 59½ also generally attract a 10% IRS early-withdrawal penalty on top of income tax.
Yes. Treaty Article 20 can protect periodic, pension-style payments in a way a single lump sum may not — so cashing out everything at once can forfeit protection that structured withdrawals preserve. Set your withdrawal structure up before you leave the US, while access to your plan administrator is easy.
A Roth is funded with post-tax dollars, so qualified withdrawals are US tax-free, and only the earnings portion is generally in question. Converting Traditional to Roth during RNOR — when India taxes none of it — is a strategy some younger returnees use, but it has US tax consequences in the year of conversion.
Once you are ROR, yes — every year, whether or not you withdrew anything. While RNOR you do not file Schedule FA, but keep all your statements: when you become ROR and file Form 10-EE, you will need to quantify the growth that accrued during the RNOR years.
No. It applies to notified retirement accounts in specified countries, which include the US (401(k), IRA), the UK and Canada. The exact accounts and conditions are prescribed, so confirm your specific account qualifies before relying on the relief.
This is the area of cross-border tax where a generalist is not enough. The interaction of Section 89A, the treaty, US withholding, PFIC rules and the irrevocable Form 10-EE election, with unforgiving first-year deadlines, means you should consult a specialist who handles US-India returns before moving any money.