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.
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 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.
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Plan your return, not just your move
Start with your residential status, then use Wealth North's guides to plan the RNOR window, your foreign-asset reporting and your move home.
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.