Return From US to India (Part 2)
Financials Before Leaving The United States
Below is the link to my previous post in this series…
In this post, I'll go over the financial stuff I had to consider before I bid the US goodbye. Gotta warn you, this won't be an entertaining read. It's a long laundry list of money matters laid out in excruciating detail.
- Over a period of a couple months before leaving, I moved Rs. 30 lac into my Indian NRE account. This is money to fund our expenses for the first couple years in India when we'll have major one-time expenses such as furnishing our apartment, buying home appliances and a car. To transfer money, I used Western Union and Xoom. At any point, one of these two services offers a better exchange rate on the dollar, so it's always a good idea to compare the rates before making a transfer.
- I'll continue to maintain my BOA checking account, which is where the money would go every time I liquidate my investments. Without direct deposit from a regular paycheck coming in, you would need to maintain a minimum balance for the monthly maintenance fee to be waived. Last I checked, it was $1500.
- Closed out a bunch of credit cards, especially the ones with an annual fee, such as Chase Sapphire. If you care about your credit score, then closing credit cards will have some impact on your score. I didn't much care about our scores and was more interested in not having to pay annual fees for cards that I most definitely won't use in India. I do recommend that if you don't already have one, then it's a good idea to get yourself a Travel Rewards credit card that has no annual fee and no international transaction fees. This card will come in handy when you travel internationally out of India, to destinations where the US dollar is accepted/preferred. Without such a card, there's a good chance you'll get ripped off exchanging rupee for dollars. If rupee continues to weaken against the dollar, you'll stand to lose even more during currency exchanges. A US credit card with no foreign transaction fee solves this problem, and not having to pay an annual fee is a bonus. I applied and was approved for the Bank of America Travel Rewards Credit Card a month before leaving the country.
- Applied for an extension to file my federal taxes for calendar year 2020. With all the logistics that I had to oversee around our big move, I had absolutely no time to do my 2020 taxes and so I filed for an extension. I just got done filing my 2020 federal returns a couple weeks ago using TurboTax.
- Downloaded all our W-2s and as many past paychecks as we thought necessary from the payroll portals of our respective companies. Once you leave your company, all these documents become very hard to get your hands on. You'll have to jump through hoops and pester your company HR to procure your financial documents. It could become a real headache, so it's best you save these documents before leaving.
- Once you're back in India and close out your US phone number and get yourself an Indian SIM, all your US financial accounts that send out OTP to your US number will prohibit you from logging in. To avoid this, you would need to change the security settings of your financial accounts to send out OTPs to your email address, or you could disable 2-factor authentication, if that's allowed (not recommended). Alternatively, you might just want to keep your US number active for your first few months in India while you get yourself an Indian number and work these kinks out. Accessing your accounts over smartphone apps instead of through a browser can sometimes help you bypass OTP authentication. So it's good to install phone apps offered by your financial companies.
- I've always maxed out my HSA contribution and wanted to do the same for 2021. Since I was gonna work only for the first three months, I tried increasing my HSA payroll deductions to a very high number. The Microsoft payroll system however wouldn't allow me to do that. They spread out the amount you specify evenly across the 26 biweekly paychecks. So I ran the numbers and made an additional contribution of $4700 out of pocket into my HSA to hit the 2021 maximum limit of $7200 for family coverage. You can only contribute to your HSA as long as you have a high deductible health plan (HDHP). So you need to make sure you make your out of pocket contributions before you quit your job and lose your coverage. Note that all this don't apply if you're just switching jobs.
- Rolled over my Microsoft HSA account into Fidelity. Microsoft's HSA administrator charges a monthly maintenance fee of $3 after you leave the company. I wanted to plug this monthly money leak and so moved my HSA funds into Fidelity, which doesn't charge a monthly service fee. I did this rollover after leaving Microsoft. We stayed in the US for three more weeks after quitting our jobs which is when I worked on rolling over my HSA and other retirement accounts.
All About 401(K), Traditional and Roth IRAs
- Just like in the previous years, we wanted to max out our 401(k) contributions for 2021. Since we only had three months of pay coming in, we set our 401(K) payroll deduction to the maximum allowed percentage. If I recall it right, Fidelity (Microsoft's administrator) allows a maximum of 65% of your paycheck to go into 401(K), while my wife's company allowed 100% payroll deduction. So nearly our entire biweekly paycheck went into our respective 401(K)s and a very tiny remaining amount hit our checking accounts. We both managed to hit the maximum allowed contribution of $19500 for 2021 by the end of March. This way, we also ensured that we didn't miss out on the company match for the year. With Microsoft's 50% match, that's $9750 for me that I didn't leave on the table.
A side note here - By funneling all your money into 401(K), you'll miss out on putting money toward your upcoming ESPP share purchases. In our case, we already knew we'd quit before our next ESPP purchase and so didn't bother with ESPP payroll deduction and dialed that down to 0%. If you can afford to time your exit immediately after an ESPP purchase, that's great. Don't lose the opportunity to snag those discounted ESPP shares! In such cases, you'll want to split your 401(K) and ESPP deductions differently.
- The general rule of thumb is that if your taxes are high now compared to your projected future taxes, then you put your money into traditional 401(K). Else you go with Roth. For 2021, with only 3 months of income, we'd probably come under the 10-12% tax bracket. So it seemed to me that Roth contributions would be better for this year. All our 401(K) contributions for this year went into Roth. This way, we'll have easy access to our contributed money in the future, and the earnings will never be taxed as long as we make qualified withdrawals.
After leaving your current job, there are three things you can do with your retirement accounts:
- Leave it behind at the employer you're leaving.
- Roll the funds over to your new employer.
- Roll the funds over to your personal IRA.
My wife and I both opened up new IRAs (both traditional and roth) with Fidelity and rolled over all our 401(k) funds into these IRAs. Traditional 401(K) went into Traditional IRA, while Roth 401(K) was directed to Roth IRA. My rollovers were easy because I was operating inside Fidelity the whole time. My wife's rollovers took some phone calls and paperwork because the funds had to be moved over from Empower Retirement to Fidelity.
- Since our three months worth of income in 2021 isn't gonna be big, it opened up an opportunity for us to make voluntary IRA contribution for the first time in all our working years. If you're filing a joint return and your MAGI (Modified Adjusted Gross Income) is under $198000, then you can make an additional IRA contribution of $6000 per person, in addition to your regular 401(K) contribution. So we both threw in $6000 each into our Roth IRAs out of pocket.
I'm also looking into converting some of our traditional IRA funds into roth before the year 2021 ends. This would be a taxable event and the money coming out of traditional IRA is considered income. So if I do this, I'd wanna be careful about the added income not bumping us up into a higher tax bracket. We'd like to stay under the 12% bracket for 2021.
Getting money into roth is always sweet because you'll never have to pay taxes again in the future once the money hits your roth. Roth money (principal) is also more accessible compared to traditional retirement accounts.
Phew! That was a long and boring account of some of the financial matters I attended to before flying back to homeland.
If there are any laws and rules I'm misstating or misinterpreting, feel free to let me know.
In my next post, I'll talk about miscellaneous non-financial stuff I took care of before the big move.
Great post! I have 2 questions:
1.) Can you not traditional IRA to Roth IRA while on RNOR and not pay taxes at all?
2.) How do you plan to use your saved up HSA funds? These cant be withdrawn without a penalty for any other reason other than medical, right? How would you use your HSA funds in Fidelity for some kind of medical expense in India?
Great post. However “ Getting money into roth is always sweet because you'll never have to pay taxes again in the future once the money hits your roth” this may not be entirely true. If you withdraw this while being a resident in India, it will still be considered income. You’ll pay taxes on gains, isn’t it?