Rolling over 401k pensions to an IRA or Roth IRA can benefit India based USA-NRI’S, PIO’S & OCI’S

 As discussed in my earlier article, the data shows that Indian forms the world’s largest diaspora population, making the largest source of labor for world market.

In USA itself it is estimated that number of Indians living in US is 39 lakhs.

According to the US state department it is estimated that approximately 9 million American currently living in abroad, which is around 3% of the US population. Among them India based USA expatriates also forms large percentage. This is also expected to increase.

India based USA residents/ expatriates can be categorized as follows:

> NRI (Non Resident of India): A citizen of India who holds passport issued by Government of India & temporarily residing outside India in a country like Unites States of America etc.

> PIO/OCI (Person of Indian Origin/Overseas Citizen of India: A citizen of any country other than Bangladesh or Pakistan, if

Ø At anytime held Indian passport or,

Ø He or either of his parents/grand/great grand parents were a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 or

Ø The person is a spouse of an Indian citizen or a person referred to in sub-clauses above.

Now a days, it becomes really difficult for India based US expatriates who lives outside USA to manage their finances & investments within US financial giants like Merrill Lynch, Morgan Stanley etc.,

If any India based US expat live outside US or are planning to do so in the coming years shortly, taking control of their retirement accounts could allow them the freedom and flexibility they need.

It is to be noted not all 401K and 403b plans are made equal and also it is good to know in detail what benefits are held within the scheme & what choice of investments are available before deciding to roll over to an IRA or Roth IRA.

India based US Americans are fortunate enough to have Defined Benefit scheme its also vital to know the guaranteed benefits associated with DB plan.

Following are the general Advantages of rolling over to an IRA or Roth IRA.

Kindly note our advice do look at the Pro’s & Con’s on a case-by-case basis.

Advantages of rolling over to an IRA or Roth IRA.

1) Better Investment Choice

The 401k are likely limited to a small sample of the investment options that are available.

However, with an IRA most types of investment are available to you, including not just mutual funds, but also individual stocks & Exchange traded funds (ETF’s).

Having more options can help you develop a better long-term strategy for one’s retirement savings.

2) Lower Costs

Depending on One’s 401k schemes, there may be lower cost fund options in an Individual Retirement Account (IRA).

3) Flexibility for withdrawals

Rolling one’s money into an IRA will enable them to manage their withdrawals & taxes they will pay on them. In addition, IRA’s could offer more flexibility in determining which assets to liquidate v/s 401k, which typically take an equal amount out of each of one’s investments.

4) More Control

If one finds that a fund in his/her 401k is not performing well, he/she may not be able to find another investment option to switch to as easily as you can with an IRA.

5) Wealth Transfer Advantages

Indians are very much attached to their children. On parent’s absence, Indians always expects their wealth to be passed on to their loved ones.

Upon death, there is a good chance that one’s 401k will be paid in one lump sum to your beneficiary.

An IRA generally allows you to name multiple beneficiaries or even a trust as a beneficiary.

6) Fewer Restrictions

Understanding one’s 401k is not easy. Each company has a lot of flexibility in how they set up the plan.

However, IRA’s are standardized by the IRS.

At the end of the day there are Pro’s & Con’s to both the 401k & IRA schemes.

Our process will help India based US expats to determine if the IRA platform is the right option for them. We are happy to talk to you about your options.

How to complete a rollover.

We at Alexander Peter Wealth Management are here to assist India based US expats & will work with you for a Trustee-to-Trustee rollover, as there are very few trustees that will permit expatriates.

Why should India based US expats consider roll over from 401k to IRA ?

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan.

By rolling over, you are actually saving for your future & your money continues to grow.

If you do not roll over your payment, it will be taxable (other than qualified Roth distribution & any amounts already taxed) & you may also be subject to additional tax unless you are eligible for one of the exceptions to the 10% additional tax on early distributions.

Following are the ways to complete Roll-Over.

1) Direct Roll-Over– If you are getting a distribution from a retirement plan, you can ask your scheme administrator to make the payment directly to another retirement plan or to an IRA.

2) Trustee to Trustee Transfer– If you are getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. Please note, No taxes will be deducted from your transfer money.

3) 60 day Rollover– If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days.

It is important any rollover received directly by you is deposited to an IRA

Account within 60 days. Failing to deposit a cheque received directly with

-in 60 days will likely result in tax consequences & potential penalties.

Final Steps In Completing the Roll-Over

1) Your advisor will gather all the required details on your retirement scheme. At the same time your adviser understands what are your plans for retirement & how rolling over to an IRA can affect your circumstances.

2) Your advisor will compare all the advantages & disadvantages of rolling over to an IRA. If they do not think it is in your best interest for a rollover, they will inform you that the application process has ended & explain how they have came to this conclusion.

3) If they think it is best that you leave your retirement account where it is, there is no cost at all for the service.

If you choose to move forward with a rollover to an IRA, your advisor will arrange the transfer for you. All their fees are discussed & disclosed in advance.
We wish to schedule a free, no obligation telephone or Email consultation to discuss ways we can help yourself and any of your colleagues. You can reach us with the following contact details.
Mr Ravi Kumar. Financial Consultant (Code: 60272381, QROPS Consultancy),

A&B Law & Financial Associates, No-2720, 12th, Main, Jayanagar 4th Block, Bangalore-560 011

Cell: +919844519872

Email: ravi.sampige@gmail.com