Cashed out your 401(k) after leaving the US and lost 30% to withholding? That 30% is usually the final tax, so a 401(k) withholding refund on Form 1040-NR is the exception. Under 59½ you may owe 10% more, though three situations do get money back.
Why the 30% on a lump-sum withdrawal usually stays with the IRS
You left the US, became a nonresident alien (NRA), and cashed out the 401(k). The plan withheld 30% and reported it on Form 1042-S, not Form 1099-R. That 30% is the default rate the IRS requires a plan to withhold from a distribution paid to a foreign person.
A lump sum is not a treaty pension
The US-India treaty does protect retirement payouts, but only periodic ones. Article 20(3) defines a pension as "a periodic payment", and the Technical Explanation says a single lump sum doesn't qualify. A cash-out therefore lands in Article 23 (Other Income), which lets the US tax it too.
So no treaty article removes the 30%. That's why I treat it as the correct tax by default, not overwithholding waiting to be refunded. Filing a 1040-NR that claims the whole 30% back, with no basis beyond "I live in India now", is a claim with nothing behind it.
If you haven't cashed out yet, a periodic 401(k) withdrawal strategy is how you stay inside Article 20 instead.
The 10% additional tax sits on top
The 30% is how the tax is collected. It doesn't replace the 10% additional tax under IRC Section 72(t) on an early distribution taken before age 59½, unless an exception such as separation from service at 55 applies. On a $100,000 cash-out, that's roughly $40,000 in total.
The 10% isn't withheld, so you owe it on a return. The 1040-NR instructions list "additional tax on a qualified plan, including an IRA" as a special tax that makes filing mandatory. A return filed to chase a refund can end with a balance due instead.
If the money is still in the plan, compare early withdrawal against a rollover before you cash out.
When part of the 30% does come back
Three situations produce a real refund. Each has a specific cause you can check against your own paperwork.
Periodic payments withheld before your W-8BEN was accepted
A genuinely periodic stream, paid at regular intervals over more than a year, falls under Article 20(1). Once the custodian accepts your Form W-8BEN citing that article, US withholding drops to 0%.
Any payment made before acceptance is still withheld at 30%. That money is overwithholding, and it's recoverable. Ask the custodian to adjust it before 15 March of the following year, or claim it on Form 1040-NR.
The part of the cash-out that came from your paychecks
The 1040-NR instructions say the part of a pension distribution attributable to services you performed in the US after 1986 is effectively connected income (ECI). IRC Section 864(c)(6) backs this up: deferred pay for past US work is taxed as if received in the year you earned it.
ECI is taxed at graduated rates, not a flat 30%. The investment growth inside the account stays at 30%, because no rule extends the ECI treatment to earnings. Your plan statements need to show how much of the balance came from your contributions and the employer match.
I don't file this split by default. It's a refund position you take deliberately, with records to back it, and the numbers show why it's often worth less than people hope.
| Tax on $70,000 from paychecks | Tax on $30,000 of growth | 10% additional tax | Total US tax | Refund or balance due | |
|---|---|---|---|---|---|
| Rahul, 38, treats the 30% as final | $21,000 | $9,000 | $10,000 | $40,000 | Owes $10,000 |
| Rahul, 38, files the ECI split | $10,112 | $9,000 | $10,000 | $29,112 | Refund $888 |
| Meera, 60, files the ECI split | $10,112 | $9,000 | $0 | $19,112 | Refund $10,888 |
These rows are illustrations using the 2026 single brackets from Rev. Proc. 2025-32, with $30,000 withheld in each case. For Rahul, the 10% wipes out almost the entire gain from the split. For Meera, past 59½, the same split returns more than a third of what was withheld.
You were still a US tax resident when the money was paid
A green card holder living in India is a US tax resident, not a nonresident alien. If the plan saw an Indian address and withheld 30%, that withholding isn't final tax. You report the distribution on Form 1040 at graduated rates and claim the 30% as tax paid.
The departure year needs the same care. A distribution taken while you were still a resident is taxed at graduated rates, so check which side of your residency end date the payment fell on.
Who this applies to
This covers a clean nonresident alien: someone who has left the US, holds no green card, and isn't a US citizen. It covers traditional 401(k) and IRA balances paid as a single cash-out or as irregular withdrawals.
It doesn't apply to:
- US citizens, who file Form 1040 and get no Article 20(1) relief under the treaty's saving clause.
- Green card holders, who are US tax residents until the card is formally given up.
- Payments made under a genuinely periodic plan with the W-8BEN already accepted, where withholding is 0% to begin with.
India adds its own layer. A lump sum received while you're RNOR isn't taxed in India, and once you're ROR it's taxed at slab rates with credit for US tax through Form 67 (Form 44 from 1 April 2026).
How to claim a 401(k) withholding refund on Form 1040-NR
If one of the three situations fits, the process runs through a nonresident return, which the IRS accepts electronically.
- Collect the Form 1042-S from the plan, plus statements splitting contributions, employer match and earnings.
- Confirm your US status on the payment date, using your residency end date.
- Report the distribution on Form 1040-NR, with the effectively connected part on the pension lines if you're taking the ECI split.
- Enter the 1042-S withholding on line 25g, per the Form 1040-NR instructions.
- Add Form 5329 if you're under 59½ and an exception applies, so the 10% is calculated correctly.
- File by 15 June of the following year if you had no US wages subject to withholding.
The mechanics of filing Form 1040-NR from India, including Schedule OI, follow the same steps as any other nonresident return. Expect the refund to take longer than a resident refund.
Before you sign the next distribution form
If money is still in the plan, the cheapest refund is the one you never need. A periodic schedule with the W-8BEN accepted first can bring US withholding to 0%, while a lump sum locks in 30% plus the 10%.
I'd set that schedule up before touching the account, and InvestMates can check which of the three refund situations fits money you've already taken out.
Frequently asked questions
Can a US state tax my 401(k) cash-out after I move to India?
No, once you've ended both residence and domicile in that state. Federal law (4 U.S.C. Section 114) bars a state from taxing retirement income, including 401(k) payouts, of someone who isn't its resident or domiciliary under the state's own rules.
Keeping a home, voter registration or driver's license there can leave you a domiciliary, so end your state domicile properly before assuming no state tax. Ask the plan to stop state withholding once your Indian address is on file.
Do I need Form 8833 to claim a 401(k) withholding refund on Form 1040-NR?
No, in most cases. The ECI split on a lump sum comes from the Internal Revenue Code, not from a treaty article, so there's no treaty position to disclose. A periodic Article 20(1) pension is also exempt from Form 8833 under Treasury Regulation 301.6114-1(c)(1)(iv).
What if my 401(k) plan reported the cash-out on Form 1099-R instead of Form 1042-S?
Ask the plan to correct it. The IRS says a distribution to a foreign person belongs on Form 1042-S and treats a 1099-R there as a plan error. A mismatch between the form the IRS received and your 1040-NR can trigger an IRS notice, so fix it before you file.
How long do I have to claim a 401(k) withholding refund on Form 1040-NR?
Generally three years. IRC Section 6511 limits the refund to tax paid within the three years before you file the claim.
Withholding on a Form 1042-S counts as paid on the return's original due date (IRC Section 6513(b)(3)), which is 15 June for most nonresidents without US wages. File within three years of that date to keep the full amount claimable.