401k Retirement Planning Guide for US NRIs

If you are an NRI with a 401k retirement plan, you are sitting on one of your biggest financial assets.

Most NRIs who built a 401k account in the US on an H-1B or work visa spend years contributing to it and very little time planning what happens next. The decisions you make about it, whether you are still in the US or already back in India, can cost or save you tens of thousands of dollars.

Two tax systems, multiple deadlines, and a set of rules most people only discover after making an expensive mistake.

In my years of working with NRI clients across the US and India, I have seen the same costly gaps come up repeatedly, and in this article I walk you through everything you need to know, from what a 401k actually is to exactly when you need to act.

What does 401k mean and how does it work?

A 401k takes its name from Section 401(k) of the US Internal Revenue Code. The number 401 refers to the specific section of the tax code, and the "(k)" refers to the subsection that created this type of account. It is an employer-sponsored retirement savings account that lets you contribute a portion of your pre-tax salary each pay cycle. Your money grows inside the account without being taxed each year. You pay tax only when you withdraw.

Any employee working in the US, including foreigners and non-US citizens on work visas, can participate in a 401k if their employer offers one. For most NRIs who worked in the US on an H-1B or similar visa, a traditional 401k is the most common account type. Your contributions lowered your taxable income in the US. That deferred tax bill becomes due on withdrawal.

Traditional 401k vs Roth 401k: which do most NRIs have?

Most NRIs hold a traditional 401k. Contributions go in pre-tax, growth is tax-deferred, and withdrawals are taxed as ordinary income in the US.

A Roth 401k works differently. Contributions come from after-tax money, so qualified withdrawals in the US are tax-free. However, India may still tax Roth withdrawals if you are a resident there at the time, because you never paid Indian tax on either the contributions or the growth.

The distinction matters when you plan your return to India. Traditional accounts give you more flexibility to time withdrawals during low-income years. Roth accounts remove the US tax burden but create a potential India tax exposure that many NRIs overlook.

401k contribution limits for 2026

The IRS announced updated contribution limits for 2026 in November 2025 (IR-2025-111). Here are the current limits:

Source: IRS IR-2025-111, November 13, 2025. The Super catch-up for ages 60-63 was introduced under SECURE 2.0 and remains $11,250 for 2026.

How employer matching works and why it matters for NRIs

Most employers match a percentage of what you contribute, often 50% or 100% of contributions up to 3-6% of your salary. This match is free money added to your account immediately. For NRIs evaluating the benefits of a 401k plan in India terms, the employer match is typically the single largest financial benefit, often worth more than the tax deferral alone.

If your employer matches 50% up to 6% of salary and you earn $150,000, contributing 6% ($9,000) earns you $4,500 in employer contributions each year. That is an instant 50% return on that portion of your savings, before any investment growth.

For NRIs uncertain about how long they will stay in the US, capturing the full employer match is almost always worth doing, regardless of your return timeline.

Should NRIs in the US still contribute to a 401k?

This is one of the most common questions NRIs ask, especially those on time-limited visas or planning to return to India within a few years. The answer depends on your specific situation. For a full analysis of the contribution decision, read our guide on whether NRIs should contribute without employer match.

When contributing makes sense even if you plan to return

If your employer offers a match, contributing at least enough to capture the full match is almost always the right move. The employer contribution plus the US pre-tax benefit together typically outweigh the cost of future withdrawal taxes, even accounting for the 30% non-resident withholding.

If you are more than five years from returning to India, the tax-deferred compounding over that period is significant. A $50,000 account growing at 7% for five years reaches roughly $70,000 before any contribution. You would need the combined tax drag on withdrawal to exceed that gain for the account to be a bad deal.

Roth vs Traditional: the decision that matters more for NRIs

For NRIs, the Roth vs Traditional question is not purely about tax brackets. It is also about which country taxes you on withdrawal.

Traditional 401k withdrawals are taxed in the US as ordinary income. If you return to India and become ROR, India also taxes those withdrawals, though you can claim a Foreign Tax Credit for US taxes already paid.

Roth 401k withdrawals are tax-free in the US. But India may still tax them as foreign income if you are ROR at the time, because Indian tax law does not recognise the Roth tax-free treatment automatically. This makes Roth less straightforward for returning NRIs than it sounds.

A Roth conversion during your RNOR period, when India does not tax your foreign income, can be a powerful strategy. You pay US tax on the converted amount at a potentially low bracket (if you have little US income that year), and future withdrawals are free of US tax. For a detailed comparison, see our 401k vs Roth IRA guide for NRIs.

What happens to your 401k when you return to India?

Your 401k account does not close when you leave the US. When NRIs move back to India, the account stays with your plan provider until you choose to act. The key change is your tax status in both countries. There is no mechanism to directly transfer a 401k account to India. What people often call a "401k transfer to India" is actually a withdrawal followed by a remittance, which has its own tax and compliance steps.

Your three core options

When NRIs return to India, they broadly have three paths: keep the account invested and let it grow tax-deferred in the US, roll it into an IRA for more flexibility, or begin withdrawing. Each route has a different tax outcome across both countries, and the right choice depends on your age, your RNOR timeline, and how soon you need the funds.

For a full step-by-step breakdown of each option including the tax math, DTAA implications, and how to structure distributions, read our 401k withdrawal strategy for NRIs.

Why your residential status changes everything

Once you return to India, your tax exposure shifts based on how long you have been back.

As an NRI, India only taxes your India-sourced income. Your 401k is untouched.

As an RNOR (Resident but Not Ordinarily Resident), typically the first two to three years back, India still does not tax foreign income including 401k withdrawals. This is your window.

As an ROR (Resident and Ordinarily Resident), India taxes your global income. 401k withdrawals get added to your Indian income and taxed at slab rates, which can reach 30% plus surcharge and cess.

The RNOR window is time-limited and valuable. Returning to India at the start of April rather than mid-year effectively gives you two full financial years of RNOR treatment instead of one. For the full NRI retirement planning picture beyond just your 401k, read our complete NRI retirement planning guide.

How is 401k taxed in India? An overview

India's treatment of your 401k depends on three things: your residential status at the time of withdrawal, whether you file Section 89A, and how you structure the distributions.

One common misconception is that 401k growth is taxed as capital gains. It is not. All 401k withdrawals from a traditional account are taxed as ordinary income in the US, regardless of how the money inside the account grew. This applies to NRIs and non-resident aliens alike.

NRI, RNOR, and ROR: which tax status applies to you?

Your residential status under Indian income tax law is calculated each financial year based on the number of days you spent in India. The rules are detailed and depend on your history of stays over the past ten years. If you have been outside India for nine or more of the past ten financial years, you will likely qualify for RNOR status when you return.

What is Section 89A and how does it protect your 401k?

Section 89A, introduced in the Union Budget 2021-22, is one of the most important provisions for NRIs returning from the US, Canada, or UK. Without it, India would tax the annual growth in your 401k on a mark-to-market basis every year, even if you have not withdrawn anything.

Section 89A defers that Indian taxation until you actually make a withdrawal, matching the US treatment. This prevents a situation where you owe Indian tax on paper gains in an account you cannot yet access without penalty.

How to file Form 10-EE

To claim Section 89A, you must file Form 10-EE in your very first year as a resident in India (RNOR or ROR). Missing this window means you cannot retroactively elect the benefit for that year's gains. The election is made once and applies going forward. File it alongside your Indian Income Tax Return for the first relevant assessment year.

How does DTAA help NRIs with their 401k?

The Double Taxation Avoidance Agreement between India and the US ensures you do not pay full tax in both countries on the same income. For 401k withdrawals, the protection depends entirely on how you structure the distributions.

Periodic monthly payments from your 401k qualify as pension income under Article 20 of the DTAA. If you live in India and receive regular monthly distributions, the US cannot tax them at all. You pay only Indian tax. This eliminates the default 30% US withholding on those payments.

Lump sum withdrawals are treated as Other Income under Article 23 and do not get the same protection. Both countries can tax a lump sum withdrawal.

The full mechanics, including the Form W-8BEN process, how to invoke Article 20, and step-by-step instructions for setting up periodic payments, are covered in our 401k withdrawal strategy for NRIs.

The estate tax trap most NRIs do not see coming

US estate tax applies to the value of assets you own in the US at the time of death. For US citizens, the exemption threshold in 2025 is over $13 million. For non-US citizens, including most NRIs, the threshold is $60,000.

If you have $500,000 in a 401k and die while living in India without US citizenship, your estate tax exposure is $440,000 at 40%, which equals $176,000 your heirs owe to the IRS. Your heirs must file Form 706-NA within nine months of death.

Your 401k, IRA, and US brokerage accounts all count toward this limit. The accounts do not need to be in your name alone for them to count.

The $60,000 exemption gap for non-US citizens

Most NRIs are unaware of this gap until they see it in an estate planning consultation. The difference between a $13 million exemption and a $60,000 exemption is not a technicality. It is a material financial risk for anyone with a meaningful US retirement account who plans to return to India and live there long-term.

Green card holders are treated differently from H-1B visa holders under estate tax rules. If you held a green card, consult a cross-border estate planning advisor for your specific situation.

Four ways to reduce your estate tax exposure

Systematic withdrawals after age 59.5. Start taking regular distributions and move money to India gradually. Each dollar moved reduces your US-situs assets.

Roth conversion. Roth IRAs have no Required Minimum Distributions, giving you flexibility to withdraw on your own timeline. Converting a traditional 401k to Roth during a low-income year reduces the account balance subject to estate tax over time.

Life insurance. A policy sized to cover the likely estate tax liability gives your heirs liquidity to pay the bill without forcing a fire sale of assets.

Non-US investment structures. Some NRIs move a portion of assets into Irish-domiciled ETFs or other non-US structures after returning, removing those funds from the US estate tax net. This requires professional guidance and is not right for everyone.

For the RMD obligations that interact with your estate planning, read our Required Minimum Distribution guide for NRIs.

When should you start planning your 401k strategy?

If you have 3-5 years left in the US

This is the ideal window to act. Max contributions to the 2025 limits. Decide whether to prioritise traditional or Roth contributions based on your return plan. Research which IRA providers accept international addresses, as policies vary. Start calculating your RNOR window so you know exactly how much time you will have after returning.

In your last 12 months before returning

Open an NRO account in India before you lose NRI status. Consult a cross-border tax advisor specifically about Section 89A and Form 10-EE, since the first-year election is time-sensitive. Decide on your withdrawal structure before you leave the US, while you still have easy access to your plan administrator.

If you are already back in India

Check your current residential status. If you are still in the RNOR window, any withdrawals you make now are free of Indian tax. File your foreign asset disclosures under Schedule FA and FSI in your Indian Income Tax Return every year, regardless of whether you withdraw anything. Not filing these is a penalty risk under FATCA and CRS reporting. For a comparison of how your 401k sits alongside IRA options, see our 401k vs IRA guide for NRIs.

Common mistakes NRIs make with their 401k

Taking a lump sum without a withdrawal strategy. Priya withdrew $200,000 at age 54, paying $20,000 in early withdrawal penalty plus $60,000 in US withholding, and then Indian tax on top as an ROR. Over 40% of the balance was lost to taxes and penalties. Structuring monthly payments under the DTAA would have eliminated the US tax entirely.

Ignoring the estate tax threshold. Vikram built a $400,000 retirement account over 18 years in the US, returned to India, and never touched the account. He died at 53. His family faced $136,000 in US estate tax. A systematic withdrawal plan started at 59.5 would have reduced the US-situs balance significantly.

Missing the RNOR window. Suresh waited until he was ROR before making any withdrawals. A $100,000 withdrawal in the 30% slab cost him approximately ₹18 lakhs in Indian tax that could have been avoided entirely during the RNOR period.

Not filing annual disclosures. Meera did not report her 401k in her Indian Income Tax Returns for three years after returning. Under FATCA and CRS, the Indian tax authorities already had the information. She faced penalties and had to file three years of revised returns.

Your action plan

Start with your residential status. If you are RNOR, that window has a fixed end date and every financial year inside it has value. Review your account balance against the $60,000 estate tax threshold and decide whether a withdrawal plan needs to start at 59.5. Get a cross-border tax advisor who works across both jurisdictions before making any large decision.

The best time to plan this was five years before returning. The second-best time is now.

Related articles worth reading:

• 401k withdrawal strategy for NRIs returning to India - step-by-step guide on how to structure distributions using DTAA, RNOR, and Section 89A
• 401k vs IRA for NRIs - which account to prioritise and when a rollover makes sense
• 401k vs Roth IRA: which to max out as a returning NRI - timing your Roth conversion for maximum tax efficiency
• Should NRIs contribute to a 401k without employer match? - a detailed breakdown of when it still makes sense
• Required Minimum Distributions for NRIs - how RMD rules apply once you are in India and what happens if you miss them