r2i forum

I am trying to come up with some ideas for reducing the GOI taxes for a USC during ROR period.

During RNOR period, USC in India wont need to worry about Foreign income, which could be distributions in brokerage account, IRA and Roth IRA.

During ROR period however, USC in India need to add up all the yearly distributions in Brokerage account, IRA and Roth IRA.

IN my case, my 401K which has 200K has AAP in Mutual funds (I am currently 37 years old)-
PIMCO TOTAL RETURN -------------- 6.94%
OAKMARK EQUITY & INCOME -------- 8.39%
DODGE & COX STOCK --------------- 23.31%
FIDELITY CONTRA ------------------ 18.25%
T. ROWE PRICE MID CAP ------------ 11.98%
WF ADVANTAGE SMALL CAP OPP-ADM -- 10.45%
FIDELITY ADV DIVERSIFIED INTL ------- 20.68%
I dont need access to above money till 60 years


The above mutual funds in my 401K, had a distribution adding upto 20K dollars (which included LTCG, STCG, Dividends)

Now my questions are as listed:
(1) Suppose, If I was in ROR period right now, I would need to account for 20K dollars for GOI tax purposes, which is approx 8lacs Rupees.
So before ROR becomes a reality, how could one restructure the portfolio above to reduce the distribution amount above? Could ETF's help in this case? If yes any recommendations to map the above Mutual funds to ETF's

(2) Assuming I make no change to my portfolio above, if I get distribution of 30K next year due to appreciation of assets, do I pay GOI taxes on 30K dollars OR 10K dollars, because 20K dollars have already been taxed by GOI in previous year

(3) The above distributions in 401K/IRA/Brokerage happen around December every month. The distributions in 401K are in one lumpsum end of year. Indian tax year runs from March to March. For GOI tax purposes, how would one breakup the above distribution so that we account for the year end distribution correctly (Basically do we just blindly take that end of year amount or do some prorating math or something?)

(4) Are there any other ways to reduce GOI taxes for USC in ROR when in India?

I am not sure whether you computed the distribution correctly. 20K out of 200K is 10%.
Even assuming all of them are bonds funds, 10% distribution is unrealistic.
But majority of your funds are equities. Hence I doubt the computation.

Is it possible you assumed unrealized gains as 'distribution' ?

more details, please..

My bad, it is approx 15K not 20K.

In my 401K, all realized and unrealized gains are clubbed together as reinvested dividends..This is breakup:

Pimco: 600$
Oakmark Equity Income: 1200$
Dodge and Cox: $5000
Contrafund: $2000
TR Price: $2000
WF SmallCap: $3000
Fido Intl: $6000

Total: approx 15,000$

Are realized(Dividends) and unrealized gains(LTCG, STCG) handled differently for GOI Tax purposes during ROR?

RRK;70586I am not sure whether you computed the distribution correctly. 20K out of 200K is 10%.
Even assuming all of them are bonds funds, 10% distribution is unrealistic.
But majority of your funds are equities. Hence I doubt the computation.

Is it possible you assumed unrealized gains as 'distribution' ?

more details, please..[/quote]

one way is to go into ETF's. ETF's are more efficient distribution wise.

Mulder420;70612My bad, it is approx 15K not 20K.

In my 401K, all realized and unrealized gains are clubbed together as reinvested dividends..This is breakup:

Pimco: 600$
Oakmark Equity Income: 1200$
Dodge and Cox: $5000
Contrafund: $2000
TR Price: $2000
WF SmallCap: $3000
Fido Intl: $6000

Total: approx 15,000$

Are realized(Dividends) and unrealized gains(LTCG, STCG) handled differently for GOI Tax purposes during ROR?[/quote]

Unrealized gains/losses are not taxed by GoI or US-IRS.
401k/IRA Dividends are taxed by GoI.

RRK;72946Unrealized gains/losses are not taxed by GoI or US-IRS.
401k/IRA Dividends are taxed by GoI.

Therefore, if AAP permits, OP could consider minimizing bond/income generating holdings in US after R2I. This is opposite of the advice given in constructing an AAP (to maximize income generating assets in tax-deferred investments) but that advice is based on minimizing US taxes. Considering OP's objective is to minimize GOI taxes upon ROR, investing in equity funds or equity ETFs in US IRA would minimize distributions (perhaps no more than 2% of asset balance each year). For $200K balance, you may have ~$4K in annual dividends/distributions. I don't know if this taxed in India at marginal rate (33%+) or at a favorable rate (10%?).

Therefore, RRK withdrawal limits are useful to essentially withdraw all IRA/401(k) assets upon R2I but if a USC turns around and invests these funds in debt instruments in India, PFIC taxes are attracted. Can't win either way, must choose the lesser evil :emsad: