401K Withdrawal / Tax Liabilities

pms_123 · Post by **pms_123** » Fri Mar 25, 2011 3:39 pm

Hello,
I was working in US from 2003 to 2009 and back now in India in June 09 working for Indian company. I was on H1b.
I had 401k JP Morgan account (23K) which I withdraw last year i.e. Nov 2010. I got refund of 18422. Now I would be filing tax returns this year.
Can someone give me an idea of
1) How much tax I owe to IRS in above case? Already 4606 $ is withheld as federal tax.
2) I transferred money to my NRE account. Do I have to pay taxes in India for the transferred money?
3) Am I Eligble for PA State Tax?
4) What form should be used for returns? 1040NR 1040
5) Can I show my spouse and my kids (one US born and one India born) as dependants? We are now in India since June 2009

TO ask in another way, I should be taxed 0 $ with 10% penalty for early withdrawal only correct?

Thanks
Prasad

Desi · Post by **Desi** » Fri Mar 25, 2011 6:21 pm

See my answers in red font:

pms_123;377939Hello,
I was working in US from 2003 to 2009 and back now in India in June 09 working for Indian company. I was on H1b.
I had 401k JP Morgan account (23K) which I withdraw last year i.e. Nov 2010. I got refund of 18422. Now I would be filing tax returns this year.
Can someone give me an idea of
1) How much tax I owe to IRS in above case? Already 4606 $ is withheld as federal tax.

How much tax you owe can be found out by filling the form 1040NR. Your personal exemption will be 3650, rest of the money will be taxable income. The instructions on form 1040NR, show you the tables for taxes on taxable income. In addition to those taxes, there will be a 10% penalty assuming that your withdrawal from tax deferred account is prior to age 59.5

2) I transferred money to my NRE account. Do I have to pay taxes in India for the transferred money?

If the money was withdrawn from an IRA, the answer would be NO. But you withdrew money from a 401K, and in that case, I think the answer may be better provided by a CPA in India. This is the reason, that a good advice is to rollover money from 401K to IRA if one is R2Iing. It is possible that 401K may be considered as a pension plan by GOI and they could tax differently. I would for filing treat it as IRA and let them come back to you if they want.

3) Am I Eligble for PA State Tax?

Eligible? You mean "Liable", no, you do not have any PA state tax liability since in 2010 you were not a PA resident.

4) What form should be used for returns? 1040NR 1040

Form 1040NR, or Form 1040NR-EZ

5) Can I show my spouse and my kids (one US born and one India born) as dependants? We are now in India since June 2009

No. An Indian resident who is NRA for US tax purposes, cannot claim exemptions for spouse or dependents.

TO ask in another way, I should be taxed 0 $ with 10% penalty for early withdrawal only correct?

NO. Your tax will depend upon your US taxable income. Based on information furnished, it appears that your only US taxable income in 2010 is the 401K withdrawal. Being an NRA, you will not be taxed on global income. So, 401K withdrawal minus personal exemption will become your taxable income.

Thanks
Prasad

r2i12 · Post by **r2i12** » Fri Mar 25, 2011 7:56 pm

Desi,

I am little confused with your response for Q#5.

I thought, after R2I, we can claim US Standard Deduction (as of 2010) for MFJ is $11400 ; Personal Exemption for 4 people (All USC - Husband, wife, two kids) 4*$3650=$14600 . So, we can withdraw $11400+$14600 = $26K per year with NO US tax and ONLY 10% penalty. Do you mean to say NRA (after R2I) does not allow to file in MFJ (Married Filing Jointly) status?

Please clarify.

Desi · Post by **Desi** » Fri Mar 25, 2011 8:14 pm

pms_123;377939Hello,
I was working in US from 2003 to 2009 and back now in India in June 09 working for Indian company. I was on H1b.

r2i12;377985 (All USC - Husband, wife, two kids)

Check the highlighted items and that will explain the difference.

r2i12;377985 Do you mean to say NRA (after R2I) does not allow to file in MFJ (Married Filing Jointly) status?

Please clarify.

Yes, NRAs cannot file MFJ.

But it appears that you may be confused about what an NRA is, since you state as following: " NRA (after R2I) ". The NRA definition has nothing to do with R2I. A green card holder or a USC is not an NRA even after R2I for tax purposes.

r2i12 · Post by **r2i12** » Fri Mar 25, 2011 8:56 pm

Desi,

Thanks for clarifying my misunderstanding of NRA as Non-Resident-American instead of Non-Resident-Alien.

GermaineQ · Post by **GermaineQ** » Fri Apr 29, 2011 2:53 pm

As we all know that the past few years have not been the best economically. The prices of food, gas and other products are rapidly increasing and we are only receiving salaries that are only enough for us and for our family. There are times that we experiences emergencies and difficulties that we need cash. Withdrawing early from a Roth or 401(k) plan incurs some stiff penalties.In order to scare up some extra cash, a lot of people have been turning to raiding their retirement accounts. Some Individuals are certainly desperate enough these days, despite the tough penalties assessed on early withdrawals from an IRA. Being able to securely retire is a luxury that fewer people think they have. I found this here: Individuals turning more to raiding retirement accounts.