Hi, have you covered anything related to Estate tax for your equities in US in any of your posts? Individual estate taxes can go as high as 40% of the principal amount.
I hope one doesn’t have to worry about it at all but you can never be over planning when it comes to international laws and taxes.
No, I have done zero research into the topic of estate tax and haven't bothered to look into that at all so far. Hope to get deep into that sometime in the coming years. Have to dig Reddit to learn more about this unfamiliar landscape.
I wish I could just outsource all this estate planning to some professional. Do you know any? I'll be happy to pay you a finders fee 😆
Hi Nitish, my portfolio is currently entirely within Fidelity. Once you become a US non-resident and report that to your brokerage through a W-8BEN document, they will start issuing you a 1042-S, instead of 1099.
So that's what I'm receiving now, a 1042-S which captures how much dividends I earned. There's no capital gains to be reported for any shares sold, since US doesn't charge capital gains taxes for non-residents.
I submitted my W8-BEN quite late and have been issued 1099 by my brokerage. I should still be able to file as NRA and not pay taxes on capital gains, right?
Hey Nitish, apologies for the delay in responding. In my understanding, as long as it can be established without doubt that you are a NRA for the tax year, you can stick to the rules that apply to NRAs, even if the documentation is incorrect (such as wrongly generated 1099). So if you are an NRA, then yes, no need to pay US capital gains tax.
May I ask which service you are using to file US NRA returns? I haven't found any service I could use to file online. So I've been mailing paper returns by courier. International courier services here charge a bomb, around Rs. 3-4 thousand! It hurts to pay so much just for a light-weight envelope of a handful of papers.
It's better that you provide your Indian address while filing 1040-NR. I last filed my US returns for tax year 2021 and haven't had the need to file for subsequent years after that.
For 2021, I filed my federal 1040-NR using a friend's address in California. I have recently got a notice from California tax department that says that I have filed 2021 federal returns using California address but haven't filed 2021 California state tax, questioning me why. I now have to respond to them with an explanation.
To avoid headaches like these, it's better to file your federal nonresident returns using your Indian address, else the state tax dept will needlessly harass you :)
Thanks for the response. That matches with my understanding as well.
I am taking help of a CPA to file my taxes this year. I don’t know of any online self guided platforms to file 1040NR. In past, I have used Sprintax to prepare my return during F1 days (you have to file 1040NR for scholarship funds) and then mailed them to IRS
Thanks a lot for your explanations and feedback and you're a life journey this helps a lot in deciding and planning our future move, Only question I have that I could not find in your article is what happens After You MOVE back to India like next year 5 years like how do you liquidateor how do you take your Money out of Ira or stocks or how do you basically get the Cash out of usa and put it into India from Ira or from stocks from Fidelity, Do I need take all the money out of US accounts let's say Ira R stocks within my RNOR status to avoid double taxation or let's see if I take money out 5 years later obviously I will have to pay taxes to both the countries
Great posts! Afa my research tells me, per letter of the law, accounts are to be converted reasonably immediately after intended permanent return to india. Ofcourse, nowhere is the word reasonable defined. I myself started the process within a month I think.
Very useful posts, thank you so much for doing this. With RNOR status, you can reset the cost basis. What happens after that? Few years down the lane, when you liquidate, how are capital gains taxed?
Since you continue to be a non-resident in US and resident in India, will the capital gains be taxed as if you invested from India? How much would that be?
Too lazy to look up exact details, but once ROR in India (and NRA in US) - No cap gains in us, but cap gains applicable in India using long term / short term rules of India. Also, tax brackets are clearly defined for international securities (traded from India)
When you were in the US, were you maxing out 401k or contributing upto company match? I have been maxing out 401k till last year and changed my contribution to upto company match. But I hear maxing out 401k is the right thing to do. Would like you take on this especially for someone who wants to return back in 3 years.
Hi Ram! Yes, I have always maxed out my 401K. Not just up to the company match, but up to the maximum allowable limit. I was also taking full advantage of the backdoor roth conversion plan. Since you're not returning anytime soon (3 years is a long enough time horizon), my suggestion would be to max out your 401K - if for no other reason, then to at least bring down your taxable income.
Thanks for the reply. Would be helpful if you can also write up on your investment allocation changes you made for FIRE if any? Like how US retirees do after RE in th US
Also, did you buy any healthcare coverage for your family or you relying on your commendable HSA savings for healthcare now( I have not seen many taking advantage of HSA like you did, great job).
A couple of questions as I am in the same situation (Moved in April 2023):
1. Were you able to reset the cost basis for individual stocks in your brokerage accounts as well like for RSUs or maybe other personal brokerage accounts?
2. For the year 2021, did you file taxes as resident or non-resident in US?
Hope your move is going well and the adjustment hasn't been too hard! What'll you be doing next? Continue to work, take a short break or FIRE for good?
About your questions:
1. Yes, I was able to reset the cost basis on all my accounts - Individual brokerage, traditional IRAs and Roth IRAs. I reset the cost basis for all kinds of holdings - individual stocks, mutual funds, ETFs, ESPP and RSU shares, etc. One thing to note here is that selling ESPP shares generates ordinary income which will be reported as W2 income for that tax year. Selling RSUs don't generate ordinary W2 income. They only generate capital gains.
Please be careful and reset your cost basis only when you are a US nonresident. If you've moved just now in April 2023, then I think you might be a US resident for 2023. If that's the case, DO NOT reset your cost basis in 2023! Then you'll have to pay capital gains tax to the US. You might have to wait until 2024, when you'll become a US nonresident.
Thanks for the detailed reply. Curious, why does one need to wait for US non resident status to reset cost basis on IRA accounts. there is no tax implications on buying and selling in IRA any way right? as long as money is not withdrawn from the account
Hi, Thank you so much for the reply. It’s an internal transfer and I will be continuing working after a short break. I wasn’t in US too long to be able to FIRE (maybe from Indian salary in next 10 years :-))
1. I won’t be taking short term gains on ESPP. As far as I understand, after 12 months of holding ESPP, one can sell the stocks for long term capital gains. So, plan is to sell the ESPPs before ROR status kicks in.
2. Even as a non resident, one has to pay taxes on capital gains in US, right? In your blogs, you have mentioned that one can sell and repurchase without paying taxes anywhere. Maybe I am reading it wrong or is that the case?
Best thing about being in India is you can take mini breaks from work without visa worries :)
1. Selling ESPP generates two outcomes - Capital gains and W2 income. You're right about the short/long term capital gains part. The W2 income part is the discount you were offered on your ESPP purchases. This income gets reported only when you sell your ESPP. So although you won't owe any tax on ESPP capital gains when you're US nonresident + India RNOR, you'll still have to report the W2 income and pay tax on it to the US. There's no way to get around the W2 income portion of ESPPs.
You'll instead pay US capital gains tax to India, but only if you sell when you're ROR. That's what I meant in my blog posts - that if you sell when you're US nonresident + India RNOR, you won't owe taxes to either country.
Feel free to let me know if you have more questions!
Very helpful info! I'm currently in Seattle and evaluating something similar. Were you able to research more on how India taxes Roth withdrawals (contributions/conversions which would be tax & penalty free in the US even before 59.5yrs) ?
Hi ps21! Sorry for the delayed response. I haven't researched a lot into Roth taxation. However, just to offer some basics, what I know so far is:
- India won't tax roth withdrawals (both contribution + earnings) when you are RNOR.
- Once you're no longer RNOR and are India resident, the contribution part of roth withdrawal shouldn't be taxed by India because the contribution part has already been taxed in the US at the time of putting it into roth. You'll probably have to pay taxes to India on the earnings part. Again, I'm still not very sure about this.
Here are a couple useful articles that might have the answers:
About converting traditional to roth, I tried doing that for 2022, but Fidelity did not allow me to do any conversions as a nonresident. Since I've reported to Fidelity that I'm a nonresident, there are various restrictions in place on my account, and this is one of those restrictions. They technically shouldn't be doing this, but I didn't care enough to follow up with them, raise objection and fight for it. So I gave up on the conversion.
Hope that helps and sorry about the delay in responding!
Awesome tips.. been on my mind as well.. similar stage of life and family size/age range etc..
question on 529: did you have that and what would you recommend (or know) people would do about it. Since i havent made up my mind, i’m still putting in decent amounts into the 529 but want to know if thats all going to go waste if we move.
Hey Shome! I never looked much into 529, only because our son was just one year old when we returned to India. Had I stayed in the US a little longer, maybe I'd have started throwing in some money into 529. I always believe in saving for the future and it's even better if the growth on that money comes with tax advantages.
If your kids are US citizens, chances are always very high that they'll move to the US in the future and so the funds in 529 would come in handy for US educational expenses in the future. A quick Google search tells me that educational expenses outside US are also considered qualified expenses for penalty-free 529 withdrawals. So looks like a good deal to me.
My apologies, not in a position to speak from first hand experience here.
Seems like a very broad question. Could help if you could be a little more specific. There are a lot of nuances here. The tax implications change depending on the type of account you withdraw from. Your tax status in India also matters, such as whether or not you are RNOR or ordinary resident.
Similar age, 1 child, spent a decade in the US between Seattle and the Bay area (In the reverse order) and a stint at Microsoft. Moved back to India (Bangalore) last year as well. Let me know if you want to grab a coffee IRL :)
Hi, have you covered anything related to Estate tax for your equities in US in any of your posts? Individual estate taxes can go as high as 40% of the principal amount.
I hope one doesn’t have to worry about it at all but you can never be over planning when it comes to international laws and taxes.
No, I have done zero research into the topic of estate tax and haven't bothered to look into that at all so far. Hope to get deep into that sometime in the coming years. Have to dig Reddit to learn more about this unfamiliar landscape.
I wish I could just outsource all this estate planning to some professional. Do you know any? I'll be happy to pay you a finders fee 😆
Interesting read. Going over it once again today. Which Brokerage services are you using? Are you receiving 1099 for your brokerage accounts?
Hi Nitish, my portfolio is currently entirely within Fidelity. Once you become a US non-resident and report that to your brokerage through a W-8BEN document, they will start issuing you a 1042-S, instead of 1099.
So that's what I'm receiving now, a 1042-S which captures how much dividends I earned. There's no capital gains to be reported for any shares sold, since US doesn't charge capital gains taxes for non-residents.
I submitted my W8-BEN quite late and have been issued 1099 by my brokerage. I should still be able to file as NRA and not pay taxes on capital gains, right?
Hey Nitish, apologies for the delay in responding. In my understanding, as long as it can be established without doubt that you are a NRA for the tax year, you can stick to the rules that apply to NRAs, even if the documentation is incorrect (such as wrongly generated 1099). So if you are an NRA, then yes, no need to pay US capital gains tax.
May I ask which service you are using to file US NRA returns? I haven't found any service I could use to file online. So I've been mailing paper returns by courier. International courier services here charge a bomb, around Rs. 3-4 thousand! It hurts to pay so much just for a light-weight envelope of a handful of papers.
What address do you mention on your filings? Some friend’s address in US (under C/O) or your Indian address?
It's better that you provide your Indian address while filing 1040-NR. I last filed my US returns for tax year 2021 and haven't had the need to file for subsequent years after that.
For 2021, I filed my federal 1040-NR using a friend's address in California. I have recently got a notice from California tax department that says that I have filed 2021 federal returns using California address but haven't filed 2021 California state tax, questioning me why. I now have to respond to them with an explanation.
To avoid headaches like these, it's better to file your federal nonresident returns using your Indian address, else the state tax dept will needlessly harass you :)
Did you receive the notice in 2025?
Thanks for the response. That matches with my understanding as well.
I am taking help of a CPA to file my taxes this year. I don’t know of any online self guided platforms to file 1040NR. In past, I have used Sprintax to prepare my return during F1 days (you have to file 1040NR for scholarship funds) and then mailed them to IRS
Thanks a lot for your explanations and feedback and you're a life journey this helps a lot in deciding and planning our future move, Only question I have that I could not find in your article is what happens After You MOVE back to India like next year 5 years like how do you liquidateor how do you take your Money out of Ira or stocks or how do you basically get the Cash out of usa and put it into India from Ira or from stocks from Fidelity, Do I need take all the money out of US accounts let's say Ira R stocks within my RNOR status to avoid double taxation or let's see if I take money out 5 years later obviously I will have to pay taxes to both the countries
Hello!
I am reading about Estate taxes in US (where id you're a non us resident and if you die, 40% of your stocks go to US govt).
Did you plan for this as well, if you're keeping >60k USD in US?
Pls let me know
Thanks
Great posts! Afa my research tells me, per letter of the law, accounts are to be converted reasonably immediately after intended permanent return to india. Ofcourse, nowhere is the word reasonable defined. I myself started the process within a month I think.
Very useful posts, thank you so much for doing this. With RNOR status, you can reset the cost basis. What happens after that? Few years down the lane, when you liquidate, how are capital gains taxed?
Since you continue to be a non-resident in US and resident in India, will the capital gains be taxed as if you invested from India? How much would that be?
Too lazy to look up exact details, but once ROR in India (and NRA in US) - No cap gains in us, but cap gains applicable in India using long term / short term rules of India. Also, tax brackets are clearly defined for international securities (traded from India)
Hi,
When you were in the US, were you maxing out 401k or contributing upto company match? I have been maxing out 401k till last year and changed my contribution to upto company match. But I hear maxing out 401k is the right thing to do. Would like you take on this especially for someone who wants to return back in 3 years.
Hi Ram! Yes, I have always maxed out my 401K. Not just up to the company match, but up to the maximum allowable limit. I was also taking full advantage of the backdoor roth conversion plan. Since you're not returning anytime soon (3 years is a long enough time horizon), my suggestion would be to max out your 401K - if for no other reason, then to at least bring down your taxable income.
Thanks for the reply. Would be helpful if you can also write up on your investment allocation changes you made for FIRE if any? Like how US retirees do after RE in th US
Also, did you buy any healthcare coverage for your family or you relying on your commendable HSA savings for healthcare now( I have not seen many taking advantage of HSA like you did, great job).
A couple of questions as I am in the same situation (Moved in April 2023):
1. Were you able to reset the cost basis for individual stocks in your brokerage accounts as well like for RSUs or maybe other personal brokerage accounts?
2. For the year 2021, did you file taxes as resident or non-resident in US?
Hi Nitish!
Hope your move is going well and the adjustment hasn't been too hard! What'll you be doing next? Continue to work, take a short break or FIRE for good?
About your questions:
1. Yes, I was able to reset the cost basis on all my accounts - Individual brokerage, traditional IRAs and Roth IRAs. I reset the cost basis for all kinds of holdings - individual stocks, mutual funds, ETFs, ESPP and RSU shares, etc. One thing to note here is that selling ESPP shares generates ordinary income which will be reported as W2 income for that tax year. Selling RSUs don't generate ordinary W2 income. They only generate capital gains.
Please be careful and reset your cost basis only when you are a US nonresident. If you've moved just now in April 2023, then I think you might be a US resident for 2023. If that's the case, DO NOT reset your cost basis in 2023! Then you'll have to pay capital gains tax to the US. You might have to wait until 2024, when you'll become a US nonresident.
2. For 2021, I filed taxes as a US resident. To determine whether you are a resident or nonresident for a given year, see https://www.irs.gov/individuals/international-taxpayers/determining-an-individuals-tax-residency-status. The "green card test" or the "substantial presence test" will help you determine what your residency status is.
Additionally since IRA is taxed based on original contributions and earnings. i don’t believe the cost basis matters. let me know if that makes sense.
Thanks for the detailed reply. Curious, why does one need to wait for US non resident status to reset cost basis on IRA accounts. there is no tax implications on buying and selling in IRA any way right? as long as money is not withdrawn from the account
Hi, Thank you so much for the reply. It’s an internal transfer and I will be continuing working after a short break. I wasn’t in US too long to be able to FIRE (maybe from Indian salary in next 10 years :-))
1. I won’t be taking short term gains on ESPP. As far as I understand, after 12 months of holding ESPP, one can sell the stocks for long term capital gains. So, plan is to sell the ESPPs before ROR status kicks in.
2. Even as a non resident, one has to pay taxes on capital gains in US, right? In your blogs, you have mentioned that one can sell and repurchase without paying taxes anywhere. Maybe I am reading it wrong or is that the case?
Best thing about being in India is you can take mini breaks from work without visa worries :)
1. Selling ESPP generates two outcomes - Capital gains and W2 income. You're right about the short/long term capital gains part. The W2 income part is the discount you were offered on your ESPP purchases. This income gets reported only when you sell your ESPP. So although you won't owe any tax on ESPP capital gains when you're US nonresident + India RNOR, you'll still have to report the W2 income and pay tax on it to the US. There's no way to get around the W2 income portion of ESPPs.
2. As a US nonresident, you don't pay capital gains tax to the US. Here's the source article mentioning this: https://www.irs.gov/publications/p519#idm140204588412592
You'll instead pay US capital gains tax to India, but only if you sell when you're ROR. That's what I meant in my blog posts - that if you sell when you're US nonresident + India RNOR, you won't owe taxes to either country.
Feel free to let me know if you have more questions!
Thank you so much. This is really useful
Very helpful info! I'm currently in Seattle and evaluating something similar. Were you able to research more on how India taxes Roth withdrawals (contributions/conversions which would be tax & penalty free in the US even before 59.5yrs) ?
Hi ps21! Sorry for the delayed response. I haven't researched a lot into Roth taxation. However, just to offer some basics, what I know so far is:
- India won't tax roth withdrawals (both contribution + earnings) when you are RNOR.
- Once you're no longer RNOR and are India resident, the contribution part of roth withdrawal shouldn't be taxed by India because the contribution part has already been taxed in the US at the time of putting it into roth. You'll probably have to pay taxes to India on the earnings part. Again, I'm still not very sure about this.
Here are a couple useful articles that might have the answers:
https://www.thegalacticadvisors.com/post/401k-ira-india
https://www.thegalacticadvisors.com/post/tax-on-foreign-retirement-accounts-401k-ira
About converting traditional to roth, I tried doing that for 2022, but Fidelity did not allow me to do any conversions as a nonresident. Since I've reported to Fidelity that I'm a nonresident, there are various restrictions in place on my account, and this is one of those restrictions. They technically shouldn't be doing this, but I didn't care enough to follow up with them, raise objection and fight for it. So I gave up on the conversion.
Hope that helps and sorry about the delay in responding!
Check out/tour Dehradun and Rishikesh. It does provide the quieter life around hills that you're looking for.
Thanks for the detailed updates. 🙏🏻
Whom should I consult for the tax implications and withdrawal of US withholdings?
Awesome tips.. been on my mind as well.. similar stage of life and family size/age range etc..
question on 529: did you have that and what would you recommend (or know) people would do about it. Since i havent made up my mind, i’m still putting in decent amounts into the 529 but want to know if thats all going to go waste if we move.
Hey Shome! I never looked much into 529, only because our son was just one year old when we returned to India. Had I stayed in the US a little longer, maybe I'd have started throwing in some money into 529. I always believe in saving for the future and it's even better if the growth on that money comes with tax advantages.
If your kids are US citizens, chances are always very high that they'll move to the US in the future and so the funds in 529 would come in handy for US educational expenses in the future. A quick Google search tells me that educational expenses outside US are also considered qualified expenses for penalty-free 529 withdrawals. So looks like a good deal to me.
My apologies, not in a position to speak from first hand experience here.
All the best with your plans! :)
Did you check on the tax implications in india for withdrawing US investments?
Seems like a very broad question. Could help if you could be a little more specific. There are a lot of nuances here. The tax implications change depending on the type of account you withdraw from. Your tax status in India also matters, such as whether or not you are RNOR or ordinary resident.
Spent around 15 years in Seattle moved back Bangalore this year .. was in Bangalore before move to Seattle.. let me know we can connect
Are you me :) ?
How similar are we? Could you elaborate? :)
Similar age, 1 child, spent a decade in the US between Seattle and the Bay area (In the reverse order) and a stint at Microsoft. Moved back to India (Bangalore) last year as well. Let me know if you want to grab a coffee IRL :)