I have a 401K that is vested. I plan to go to India and cash it. How to do without paying much penalty and tax

Question

I have a 401K that is vested for around 100000 US$ and I am allowed to take it after I leave the employer. I do plan to go back to India. Is it possible to take 15,000 $ per year and avoid paying federal and state taxes ( Since Iam out of country and not a resident + it falls with less income per annum). Is there a penalty that I have to pay while taking money out. I will have closed all my bank accounts except this IRA/401K account and so how would I pay the penalty and any taxes that might occur. Please advice.

Answer 1

The others hit it right on the 59 1/2 age thing but also since you will be out of the country the mandatory withholding goes up to 30%. Yes, by minimizing the distribution amount you can lower your tax but you'll still need to file US returns to get that extra money back. If you don't live in the states you won't have any state tax.

Answer 2

If you take out a full distribution and you are under age 59 1/2 then the withholding is a mandatory 20%. You add that amount to the withholding that you had taken from your paycheck. The 10% extra tax is applied when you file your taxes up in the other taxes section of the 1040. BUT, if your distribution is under $200 then they will withhold nothing from the check. AND, lastly...if you're taking a hardship withdrawal or a distribution after age 59 1/2 and it's not a full distribution then the withholding is optional. You dictate how much you want withheld. If you don't tell them, they will withhold 10%.

Answer 3

If you are not more than 59 1/2, 20% tax will be deducted by the holding compnay before any distribution is made to you. However when you file your USA income tax return (1040 OR 1040 NR or applicable in your situation-NR stands for Non resident) you can offset this income against your standard deductions & personnel exemptions. As long as you withdraw the right amount to offset against this exemption & deductions, you will get entire amount (that was withheld less penalty) back. However if you are under the age of 59 1/2, you will have to pay 10% withdrawal penalty.

Answer 4

There's a 10% penalty on anything you withdraw before you're age 59-1/2. Taxes would depend on your bracket for the year, so taking it out over time would make sense.