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it all depends on future tax rates which we don’t know .
as well as your plans , will you need to keep income low for an aca subsidy?
will you need a lower taxable income to keep ss from being taxed ?
will you plan on spending down the traditional using a low taxable income to allow the standard deduction to give you those withdrawals at no or very low tax rates ?
when you take rmds will you be living off that money the same as you would be drawing off that money from a roth to live ?
that means future gains on that money being tax free are a moot point in both cases as you will live off it .
what about effects on a spouse if you die and she is filing single with taxable rmds ?
there is no one size fits all answer
I am not sure of these tersm, need to learn more.
For now I know that I will be talking out this amount after I stop working post 60. That means, I will be earning from direct salary, though I will still need to file taxes as my saving may be earning some dividents, etc. Also, I will be in India at that time and this money will be used for my son's eduction in India.
I will check more about the questions you asked, if they affect the decision of Traditional IRA vs Roth IRA.
Last edited by abhisheks77; 09-03-2023 at 10:26 AM..
OP, will you even be required to pay U.S. taxes? If I understand your situation correctly, you are a non-citizen working in the U.S. for a Company that's based in India. What about taxes in your new country? Would you be paying taxes in several countries when it is withdrawn?
I will leave the job in US and will start working in India from Q1 2024, and keep working till my retirement age of 60, i.e. 15 years from now. I don't want to touch this money till then and would want to keep it growing with Fidelity. After my 60, when I will stop earning in India, I will look to start withdrawing it for my son's educational expenses in US. That means, I will not be moving this money to India. Roth IRA withdrawals are generally not taxable in India since there is no taxable event on withdrawal in the US. At the time of withdrawal, contributions are tax-free, only the earnings are taxed at the prevailing rates. Considering this setup, I am trying to learn if traditional IRA would be wise for me for or Roth IRA.
Last edited by abhisheks77; 09-03-2023 at 10:30 AM..
The main difference is in a 401K you have little choice in the funds the 401K holds. This may be determined by the list of funds available for you. Also depends on the company if you can remain in contact over 15 years.
In a rollover now you choose what funds to invest in. As long as they do business in India may be possible to have more contact.
To do what you want may need to do rollover to keep assets with you.
This part is clear to me now. My confusion is, if I should choose traditional or Roth IRA
OP, wether you decide to stay with the 401k, or go with a tIRA rollover, or Roth conversion, have you picked a custodian for the new account that will maintain a US account for you while you (as a non-US citizen) live and work in India ?
Many US financial institutions do not want to hold accounts for people residing outside the US. Even US taxpaying citizens.
When my son (a US citizen) moved to the UK permanently , several US accounts closed him out after learning he was no longer a US resident.
Being in London, he was able to open an account with Schwab's International office in London.
You may want to consult with a financial adviser , experienced in international banking
OP, wether you decide to stay with the 401k, or go with a tIRA rollover, or Roth conversion, have you picked a custodian for the new account that will maintain a US account for you while you (as a non-US citizen) live and work in India ?
Many US financial institutions do not want to hold accounts for people residing outside the US. Even US taxpaying citizens.
When my son (a US citizen) moved to the UK permanently , several US accounts closed him out after learning he was no longer a US resident.
Being in London, he was able to open an account with Schwab's International office in London.
You may want to consult with a financial adviser , experienced in international banking
I checked with Fidelity earlier and they mentioned, I need to submit W8 form and then they are good. But I asked for traditional 401k account. I will ask for IRA too, if I will be able to maintain that with same procedure.
I understand and agree that we don't know what would be Annual returns after 15 years. But I am going with assumed rate based on past, and from taxation prospective, if it would be wise to rollover to Roth IRA, in comparison to traditional IRA.
But that will mean a tax bill based on the person’s taxable income for year it happens and the amount turned over into the Roth…
The OP needs an accountant with more knowledge than those posting here
I will leave the job in US and will start working in India from Q1 2024, and keep working till my retirement age of 60, i.e. 15 years from now. I don't want to touch this money till then and would want to keep it growing with Fidelity. After my 60, when I will stop earning in India, I will look to start withdrawing it for my son's educational expenses in US. That means, I will not be moving this money to India. Roth IRA withdrawals are generally not taxable in India since there is no taxable event on withdrawal in the US. At the time of withdrawal, contributions are tax-free, only the earnings are taxed at the prevailing rates. Considering this setup, I am trying to learn if traditional IRA would be wise for me for or Roth IRA.
One thing that has changed about Roths is that a certain amount of money in a 529 account can be turned into a Roth
Maybe you might consider starting a 529 for your son—to pay for his college
Money that is once used from a 529 account is required to be counted in college aid applications though which may impact financial aid he might apply for
Contributions grow tax free (like in an 401K/IRA/Roth) and if one child graduates or leaves school and money is left the account can be transferred to another child or family member.
If your child is in college, there is no limit for 529 amount withdrawals. The only tax-free requirement is for the withdrawals to be used for qualified expenses. (Rent in a non-college apartment does not qualify as tax-free withdrawal. Paying off credit cards for living expenses are not tax-free withdrawals)
If you're paying for private school expenses for younger children, you can withdraw up to $10,000 tax-free for qualified education expenses for children between K-12.
One thing that has changed about Roths is that a certain amount of money in a 529 account can be turned into a Roth—
Maybe you might consider starting a 529 for your son—to pay for his college
Contributions grow tax free and if one child graduates and money is left the account can be transferred to the other child.
If your child is in college, there is no limit for 529 amount withdrawals. The only tax-free requirement is for the withdrawals to be used for qualified expenses. (Rent in a non-college apartment does not qualify as tax-free withdrawal. Paying off credit cards for living expenses are not tax-free withdrawals)
If you're paying for private school expenses for younger children, you can withdraw up to $10,000 tax-free for qualified education expenses for children between K-12.
I will be staying in US for next 6-8 months, so I don’t have long time to keep contributing in 529. If I plan for 529, does it need to go from my savings? Or I can move from my 401k also?
I will be staying in US for next 6-8 months, so I don’t have long time to keep contributing in 529. If I plan for 529, does it need to go from my savings? Or I can move from my 401k also?
If you take money out of your 401k it is taxable income and likely you will pay a penalty because you aren’t eligible to make a withdrawal…
I don’t know if you can open a 529 now at Fidelity or somewhere else and make contributions from earnings in India
Fidelity could probably tell you
Might create tax issues in the US
If you take money out of your 401k it is taxable income and likely you will pay a penalty because you aren’t eligible to make a withdrawal…
I don’t know if you can open a 529 now at Fidelity or somewhere else and make contributions from earnings in India
Fidelity could probably tell you
Might create tax issues in the US
Yes understood. But then 529 is not for me considering that I am in US for few months only, so I won’t be able to contribute long enough. And 529 can’t be funded from my 401k without paying tax+penalty at this stage.
I am trying to learn if rolling over to traditional IRA will be better for me or Roth IRA.
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