Friday, September 11, 2009
R2I - 401(k) closure FAQs
Have you thought through all the options regarding "What to do with your 401(k) account" during your return to India? Have you decided to close your 401(k) account? Do you have questions lingering in your mind regarding 401(k) account closure? Hopefully, you'll find an answer to your question here.
1) When can I close the 401(k) account ?
You should be out of job to close the 401(k) account. Typically, you'll get the 'participant distribution' application to fill during your last working day. You can fill the application and submit it to your HR or 401(k) Benefits Provider.
2) What is the process involved to close the 401(k) account?
You'll receive the 401(k) 'participant distribution' application (from your HR) during your last working day. You need to just fill-it and hand it over to the HR or 401 (k) Benefits provider.
3) What are the options that I'll have when deciding to close the 401(k) account?
Read "R2I - What to do with the 401(k) account" post which describes this in detail.
4) Will my tax be withheld at the source when I close the 401K account?
A flat 20% Federal tax will be withheld at the source when you close the 401K account. In addition, there is a 10% penalty for early withdrawal.
5) What would be the with holdings done at source by the 401K Benefit Provider, when I close the account ?
There will be a flat 20% federal tax withheld when you close your 401k account.
You can settle the remaining tax when you file your tax returns, next year. (If you fall in a lower tax bracket, you'll get the excess money back from the government. If you fall on a higher tax bracket, you may have to pay the money that you owe to the government).
6) When would I have to pay the penalty?
You'll have to pay a 10% penalty for early withdrawal. The penalty will have to be paid when you pay your taxes.
7) How long does the 'closure' process take?
In a couple of days, your 'participant distribution' form will reach the 401(k) Benefits provider. Your 401(k) Benefits Provider will take care of the formalities in a week.
You may expedite the process by contacting 401(k) Benefits provider upon your last day. Tell them that you'll have to R2I & hence the urgency.
8) How long does it take to get the 401K money after I close the account?
The check takes about 15 business days and the wire about a week.
9) Can I still maintain my 401K account after moving to India?
Some 401(k) Benefit Provider will let you to manage your account online. Talk to your 401(k) Benefit Provider or transfer your 401(k) account to someone who'll provide you online management.
10) Do I have to pay additional tax when I file the Income Tax returns, next year?
It depends. Depending upon your tax bracket, you may have to pay additional taxes. Look at the tax bracket into which you'll fall when you file the tax returns.
You'll have to pay the 10% penalty for early withdrawal, when you file your tax returns.
11) Can the 401(k) Benefit Provider 'direct deposit' the proceeds of closure to my bank account?
Yes. The 401K provider can wire the proceeds of the 401k closure to your bank account. You need to work it out with them when you fill the 'participant distribution' form on your last working day.
What to do with the 401(k) account?
10 things to know if you are thinking of Returning to India
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