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Hello,

I returned from US about 4 yrs back. Now my status is Ordinary Resident status in India. I have been filing taxes in India for past 3 yrs now. I don't file for taxes in USA any more since I used to have 0 income there. I withdrew my 401k last month. Hewitt deducted an additional taxes of 10% since I didn't have W-8BEN form on file with them (I didn't have any idea about that form and Hewitt guys didn't inform me about that either)
I have that money in my USA bank account.
Total value of my 401K account was ~55K
Amount that I should have received was ~43K and I got only ~35K.

I have got few questions:

1) Can I claim those 'lost' 8K when I file taxes in USA next year ? If yes, how ?

2) Can I submit W-8BEN form now and do some thing to get that money back ?

3) If I transfer this money to India now, will I be taxed on this entire 401K amount in India ? If yes, then how can I minimize the tax liability ? I will fall in the minium tax bracket for this year in India :(.

Please help.

Thanks
Deep Chand

Deep Chand #1

I wish you raised these questions earlier before taking the distribution. Now it is too late to implement any tax savings strategy. Anyway, here are some of my thoughts on your Q?s:-

Q1. Can I claim those 'lost' 8K when I file taxes in USA next year? If yes, how?

A1. It appears that 30% plus another 10% was withheld. I believe that Hewitt made an error in exceeding the 30%. Write to them and point out that under IRC 1441(R1) they made an error and cannot withhold more than 30%. Seek an immediate reimbursement of the extra 10% ~ this has a very slim chance of success. Remember that this money is for withholding only not the actual tax. File a tax return in early 2012 and seek a refund if the tax amount is less than what was withheld. You need to file a 1040NR.

Q2. Can I submit W-8BEN form now and do something to get that money back?

A2. You made an initial error of not sending a W-8BEN long ago. Submitting a W-8BEN to Hewitt now is late. However, submit one to the bank for any future income from that a/c.

Q3. If I transfer this money to India now, will I be taxed on this entire 401K amount in India?

A3. By itself, whether you keep the money in a foreign a/c or transfer it to India as tax-paid money should be of no consequence for Indian taxation. However, you need to examine past history of your 401k a/c and determine if there has been any incremental gain or accrual beginning with your change of status to ordinary resident. This incremental amount, if any, is subject to taxation in India. You may claim proportional credit from India for taxes paid to US for this incremental amount.

(R1) http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001441----000-.html

Thanks bmukherji for your response.

I know I made that error but I was really not aware of any thing of that sort. Since I was requesting direct transfer to my US Bank account, I assumed it would be a straightfwd process. The reason they did was that my correspondence address was updated last year to India address :(. Any way, what ever happened can't be rolled back. So no point mooting that.

1) So I should get the 'lost' money in 2012 when I file my USA taxes as NR. Correct ?

2) I should not be taxed on the 'entire' amount that I transfer to India. Only the profits made post my Ordinary Citizen status. Correct ?

Thanks
Deep

Also, in W-8Ben form, I have ticked 9a and 9b in Section II. Is that sufficient ? In Point 10, what should I fill ? I do not have any other source of US income or investments.

Thanks
Deep

dgiscool;422427Also, in W-8Ben form, I have ticked 9a and 9b in Section II. Is that sufficient ? In Point 10, what should I fill ? I do not have any other source of US income or investments.

Thanks
Deep

There is usually a 10% penalty for premature withdrawal except for exclusions, such as buying a 1st house in US etc.. isn't it?

dgiscool;4224251) So I should get the 'lost' money in 2012 when I file my USA taxes as NR. Correct ? [/quote] Since you took a taxable distribution, you should file tax return for the year 2011 in early 2012 time frame. Some of your income distribution will be taxed, so there will be some taxes and also the 10% penalty. If this total amount is less than the taxes witheld you will get a refund back.

[QUOTE]2) I should not be taxed on the 'entire' amount that I transfer to India. Only the profits made post my Ordinary Citizen status. Correct ?

Transferring money from USA to India or from India to USA is not of any tax consequence. There are no consequences associated with that.

However, you withdrew money from your tax deferred plan and in that plan, following could have occured during the time frame April 1, 2011 to march 31, 2012 >> you may have earned some dividends, you may have earned some interest and you may have sold some Mutual funds or other securities. The interest, the dividends would be taxable income to an Indian resident and should be reported on Indian tax return. Similarly when you sold the Mutual fund, then you will have information on the proceeds from the mutual fund. You also will have to figure out the cost of the mutual fund which you may have bought at one time or over multiple purchases. The difference between sell price and the cost would be your capital gains. These capital gains are reportable on Indian tax return.

Wow ! This thread is altogether giving me a new direction to move on. What is this W8BEN form meant for? How do I know if this has been applied to my bank account or not? I remember this name coming in some conversation but I don't remember if I filed it or not.

I have few more queries, that probably you may shed some light on as I am also planning to withdraw my 401 K funds. I am thankful and obliged that I came across r2I today by doing a google search. Any help would be highly appreciated.

Before moving forward, here is a brief history of my US stay:


My case details are :

1. I worked in USA on H1B visa (no GC) Since April 2007- April 2009. Have 401(K) - Employer sponsored.
2. I left USA in Apr 2009 and returned back to India. Later, I had couple of (non-earning) visits on B-Visa for very short periods.
3. I still have active bank accounts in USA but the correspondence address now changed to India address.
4. I do not have any taxable income (except a few cents earned as interest in Checking account) in USA since 2010. (Income tax refund was filed in 2010 in USA and received payment.)
5. I do not have any taxable income in India for last FY or this year too. My current status is un-employed/self-employed.
6. Currently 401 K administrator is charging a heavy fees for funds management as there is active contribution.

I would prefer to withdraw funds from 401 (K) but I am open to other options as well which give me benefits with least penalty, taxes or similar losses.

My queries:
1. What is best approach to withdraw funds - which forms are needed in USA?
2. Should I withdraw the funds to US Bank account with direct deposit having India address to save tax liability or penalty, or to Indian bank account?
3. Is there a better option than to withdraw funds from 401 K?
4. Will it be taxable in India, if funds withdrawn now? Double Taxation benefits - What needs to be done to avail these benefits?

A detailed guideline would be highly appreciated.

Thanks in advance.

yogs;628314

A detailed guideline would be highly appreciated.

Would you like it to be fedexed to you?

Desi;628316Would you like it to be fedexed to you?

Nice to see that good people cannot help themselves...... but offer to help:thup:.

yogs;628314
My queries:
1. What is best approach to withdraw funds - which forms are needed in USA? [/quote] Withdrawing the funds makes sense. What forms are needed? Well, contact your 401K administrator and ask them.

yogs;628314
2. Should I withdraw the funds to US Bank account with direct deposit having India address to save tax liability or penalty, or to Indian bank account?

Whether you get funds deposited in US bank account or Indian bank account does not affect tax liability. Your tax liability is dictated by your filing status, income and the amount of 401K distribution and is not dictated by where and to which bank you direct the money.

[QUOTE]3. Is there a better option than to withdraw funds from 401 K?

You can send funds to me, that sounds like a better option to me. Seriously, you are probably better off withdrawing all the 401K funds. Depending upon how much funds you have there you may want to distribute withdrawals over multiple years to optimize on taxes.

[QUOTE]4. Will it be taxable in India, if funds withdrawn now? Double Taxation benefits - What needs to be done to avail these benefits?
401K is a complex beast in terms of taxability. Clarity is somewhat missing in that case and hence I generally recommend people to transfer 401K to IRA before they leave for India. Most of the brokerage houses do not withold any taxes if you have an India address with them. Although any distribution from 401K they are required to withold taxes if you have a USA address. Pensions are taxable by India. However I think paying taxes on 401K distribution to USA is better. Taxation in India would be a bit complicated. I doubt if you reset the 401K basis when you transitioned in to ROR status. So you may need some good local CPA help.