On Feb 20, 11:26 am, kishorkumargangoo...[at]yahoo.com wrote:
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You can get a lot of details in the Return2India forum
at http://forum.r2iclubforums.com Some responses inline.

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Your own contributions should be always vested.

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This will involve Indian taxes also. The R2I forum
I mentioned above has many discussions on this 401k/IRA
withdrawal management issues.

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by withdrawals during low-income years.

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matter for how you are taxed by US (US taxes GC holders
like other US residents). But it may not make much
difference due to tax treaties.

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or not (flat 30% per treaty). But, I do not have any experience
in this area.

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returning to India.

-- Shankar Prasad
spras2rao2[at]gmail.com

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On Feb 20, 11:26*am, kishorkumargangoo...[at]yahoo.com wrote:

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See the instructions for form 1040-NR.

http://www.irs.gov/pub/irs-pdf/i1040nr.pdf

In there they talk about IRC section 871, which is for example at
http://www.intltaxlaw.com/inbound/fdap/irc.htm.

There they say that all US source income is taxed at 30%. But I don't
see where on form 1040-NR they use this 30%. Even the worksheet on
page 19 of the instructions does not use 30%, and looks to be the same
as the regular citizen tax (which will be much less than 30% if your
own US source income is the IRA to which you've contributed for only 5
years). Can someone please show me where they calculate the 30% tax?

Would money from a Roth IRA be free of tax for non-residents. I think
the answer is yes, but IRC section 871 does not mention it.

Suppose you are in the 25% bracket for federal and 5% for state, then
by contributing to an IRA or 401K you save 30%. And your money grows
tax free too. I guess if you return to India, the money in your IRA
will be free from both India and US taxes until you withdraw it. On
form 1040-NR you get a credit for taxes paid to India (but only on the
US source income taxed by India). So yes, it makes sense to
contribute.

Plus if you switch jobs you can rollover your 401k to an IRA at a
brokerage like ETrade, and then you can buy any stocks, bonds, ETFs,
mutual funds you please, as opposed to being restricted to the mutual
fund choices in your employer's plan, and then you could hopefully
make more money. And if your company does matching 401K, then all the
more reason to do.

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Hi, I need some expert advice on IRA / 401K plan.

Background
I am an alien worker currently working on H1B. I recently joined a
company which offers 401K (after 6 months) and also I am in a
initiation process to file my Green Card. However I am planning to
return to my home country after 5-6 Yrs. I need to take a decision
before April 15 whether I should put some money in IRA or not.

My understanding
My understanding is both IRA and 401K are tax differed and hence I
will have to pay taxes when I withdraw it more over I will even have
to pay a 10% fine if I decide to withdraw it before maturity. Also
there is a 5 Yrs vesting period to withdraw 401K money. My initial
plan was since 401K is free money why to leave it? Accordingly I had a
thought that I will have a Traditional IRA a/c for current year (Since
not eligible for 401K this year) and will put 4000$ in it. Next year
onwards I will put money in 401K and company will match certain % to
it. After initial 5-6 Yrs when I plan to go back I will rollover 401K
money into IRA and will leave the country. The following year (year
after leaving US) since I won't have any US income I can withdraw it
in phases to avoid tax?

Problem
However this leads to numbers of questions -
1. Whether my understanding is correct. Can I phase out the
withdrawals to avoid tax and/or penalty?
2. Will it make any difference if by that time (though looking at the
pace looks very hard) if I get my Green Card and then leave the
country ( I know I have to maintain the status but still will it make
any difference)
3. Do we pay taxes as per tax slab or it is a flat 30% tax for alien
workers?
4. Are there any issues while rollover?

In a totality does it make sense to have IRA/401K account? Or it will
be a loss business ?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >