Traditional 401k taxation for Non residents (international student)

[Indrajeet Kakade]

Hello,

I am an international student working in a manufacturing company. Can you explain how the traditional 401k will be taxed when I decide to withdraw? Will it be based on my tax bracket at the time of withdraw (If I get my H1b visa or employment based green card) or my tax bracket now (F1 OPT)?

Thanks

[SoCalGal21]

Hi Indeerajeet!

The first thing to look at is  your age at the time of withdrawal. Three are exceptions but usually if you are younger than 59 1/2 years old, the withdrawal would be fully taxed as well as an additional 10% penalty.

https://turbotax.intuit.com/tax-tips/retirement/an-early-withdrawal-from-your-401k-understanding-the... 

Next this rule applies for US residents and nonresident aliens. Ordinary tax and the 10% penalty.

Key Takeaways. When it comes to early retirement account withdrawals, the rules are the same for both U.S.residents and nonresident aliens. Your entire 401(k) withdrawal will be taxed as income by the U.S. even if you're back in your home country when you withdraw the funds.

And yes when we say ordinary income, we mean this withdrawal amount will be added to all of your other US income to determine which tax bracket you fall on.  So it could potentially put you into another tax bracket.  Here is the IRS Tax Bracket Calculator for you to estimate that effect: https://www.google.com/search?q=irs+tax+bracket+calculator+2023&rlz=1C1GCEA_enUS989US996&oq=irs+tax+...

Was this helpful to you?  Is there anything else I can help answer for you?  Catherine EA

[LorenL1]

Hi Indrajeet,

Yes, your 401(k) withdrawal will be included in your gross income and will be taxed based on your tax bracket.  If you are younger than 59 1/2, not disabled and choose to cash out the funds from your 401(k), you will be subject to a 10% early withdrawal penalty and your entire 401 (k) withdrawal will be taxed as income by the U.S.  

If you transfer the funds to another tax-advantaged account such as an Individual Retirement Account (IRA), then you can avoid the 10% early withdrawal penalty.  

https://turbotax.intuit.com/tax-tips/retirement/an-early-withdrawal-from-your-401k-understanding-the...