"I am back in India but I have some money lying in my 401k account in
the US. What should I do?" This is a very common question these days,
considering the number of Non Resident Indians (NRIs) returning home
after a stint in the US. In this article, we find the answer.
First, a quick glance at how a 401k plan functions: A 401k plan is
aimed to be a retirement plan wherein you contribute money every year
into a plan selected by your employer. Your employer may choose to
match your contribution up to a certain limit - that is, he may put in
money equal to your contribution into your plan. Your contribution is
made out of pre-tax dollars, that is, the amount of contribution is
deducted from your taxable income in the year you make the
contribution. The funds are locked in till you hit the age of 59 and a
half. Withdrawals that you make after that will be taxed according to
your tax bracket. If you want to make a premature withdrawal before
you turn 59 and half, in addition to paying taxes, you will have to
pay a penalty that could go up to 10% of the withdrawal. more.. ..
The lock-in is what hits most NRIs. So what is the best thing to do?
Ethan Schneid, Partner at the New Jersey based financial advisory firm
Kubhera Enterprises advices, "What you choose to do with your 401k
plan would depend on your goals. For instance, if you need the money
that is lying in your 401k account, you have no choice but to withdraw
it and bear the taxes and penalties. But, if you don't need the money,
this might be a good way to diversify your portfolio. Since
investments of a 401k plan would be primarily in the US stocks and
bonds market and that too dollar denominated, you get the opportunity
to hedge against country risk and currency risk."
So what are the options if you decide to keep your investments in the