Great post! I would put a note on the HSA contributions though. Your HSA limit is prorated by the number of months for which you had HDHP insurance. So if you had a HDHP for 3 months and no insurance for the other 9, you are only allowed to contribute 3/12 * yearly limit.
Hi Pranav! You're right, thanks for pointing it out. I had made a similar post on the 'Blind' tech forum more than a year back and somebody had pointed out my HSA mistake. I later got it corrected.
With my three months of HDHP enrollment for 2021, my HSA contrib limit turned out to be 7200 * 3 / 12 = $1800. I then placed a request with Fidelity to withdraw the excess contribution of $5400.
CubicleDog, were you able to find about how withdrawls from 401k/Roth will be taxed when you are a resident in India? I am speculating that though Roth withdrawls will not be taxed in USA, they will be taxed in India.
Hi Raju, I haven't actually looked into it very much because I don't think I'll be withdrawing from my 401K/Roth anytime soon, definitely not for the next many years. So haven't spent much time learning about this. But here's an article in case you'd like to look more into this - https://www.thegalacticadvisors.com/post/401k-ira-india
1. How much money is insured in India (in case the bank/brokerage goes bankrupt). Like USA has FDIC and SIPC insurance covering 250k and 500k USD respectively.
2. Also, when your money is in USA and you're in India, will FDIC, SIPC insurance apply to you?
I might not have good answers to your questions, because I haven't looked into these things much. I usually just go with the institution's reputation and don't look very closely into the FDIC/equivalent side of things. My hand-wavy answer is - hey, banks like SBI, Paytm or Fidelity aren't going anywhere, your money with them will be fine 😅
Looks like the Indian equivalent of FDIC/SPIC is "DICGC" which covers all kinds of deposits.
I'd love to know if you find definitive answers from sources of truth!
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 These cant be withdrawn without a penalty for any other reason other than medical, right?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?
1) Looks like IRA administrators don't allow traditional to Roth conversion once you become a US non-resident. I tried doing this conversion after becoming a US nonresident, but Fidelity took me to a webpage that said I need to call them for further assistance. I did not take the trouble to call and just left it at that.
So you can convert from traditional to Roth while you are India-RNOR + US-resident, but then you'll have to pay taxes to the US for that converted money, defeating the whole purpose of tax-saving.
2) You can surely use HSA funds from India, but only for medical expenses if it has to be penalty-free, as you've mentioned. You can pay for your medical expenses in India out of pocket, and then later file a request for reimbursement with Fidelity. As far as I've seen, they don't care about verifying your medical expenses. They simply release the funds. It is up to the IRS to decide later whether to ask for further documentation or audit you.
I haven't used HSA so far to reimburse myself for our family medical expenses because our medical expenses currently are reasonably small and we can afford to pay out of pocket. I'm just keeping the HSA funds untouched as a sort of insurance against a big medical emergency.
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?
Hi Guru Prasad! You're right that India might tax Roth gains. I meant that one doesn't have to pay any taxes to the US on Roth withdrawals. I still have to research how India would tax Roth withdrawals. Haven't found definitive answers yet.
This post here https://www.thegalacticadvisors.com/post/401k-ira-india says that India might not, but they're not sure either! My only relief is that I hopefully don't have to worry about Roth withdrawals for many years to come :)
This has been discussed online many times over and no real conclusion. However, most say this would still be taxed in India like regular income if we withdraw while being a resident/ wont be taxed if withdrawn during (but US taxes on the gains). Thanks for the link.
Great post! I would put a note on the HSA contributions though. Your HSA limit is prorated by the number of months for which you had HDHP insurance. So if you had a HDHP for 3 months and no insurance for the other 9, you are only allowed to contribute 3/12 * yearly limit.
Hi Pranav! You're right, thanks for pointing it out. I had made a similar post on the 'Blind' tech forum more than a year back and somebody had pointed out my HSA mistake. I later got it corrected.
With my three months of HDHP enrollment for 2021, my HSA contrib limit turned out to be 7200 * 3 / 12 = $1800. I then placed a request with Fidelity to withdraw the excess contribution of $5400.
CubicleDog, were you able to find about how withdrawls from 401k/Roth will be taxed when you are a resident in India? I am speculating that though Roth withdrawls will not be taxed in USA, they will be taxed in India.
Hi Raju, I haven't actually looked into it very much because I don't think I'll be withdrawing from my 401K/Roth anytime soon, definitely not for the next many years. So haven't spent much time learning about this. But here's an article in case you'd like to look more into this - https://www.thegalacticadvisors.com/post/401k-ira-india
Excellent post. Thank you for writing this up!
Few questions
1. How much money is insured in India (in case the bank/brokerage goes bankrupt). Like USA has FDIC and SIPC insurance covering 250k and 500k USD respectively.
2. Also, when your money is in USA and you're in India, will FDIC, SIPC insurance apply to you?
Hey PG! Glad you found the post helpful :)
I might not have good answers to your questions, because I haven't looked into these things much. I usually just go with the institution's reputation and don't look very closely into the FDIC/equivalent side of things. My hand-wavy answer is - hey, banks like SBI, Paytm or Fidelity aren't going anywhere, your money with them will be fine 😅
Looks like the Indian equivalent of FDIC/SPIC is "DICGC" which covers all kinds of deposits.
I'd love to know if you find definitive answers from sources of truth!
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?
Hi Abhi, apologies for the delay in responding!
1) Looks like IRA administrators don't allow traditional to Roth conversion once you become a US non-resident. I tried doing this conversion after becoming a US nonresident, but Fidelity took me to a webpage that said I need to call them for further assistance. I did not take the trouble to call and just left it at that.
So you can convert from traditional to Roth while you are India-RNOR + US-resident, but then you'll have to pay taxes to the US for that converted money, defeating the whole purpose of tax-saving.
2) You can surely use HSA funds from India, but only for medical expenses if it has to be penalty-free, as you've mentioned. You can pay for your medical expenses in India out of pocket, and then later file a request for reimbursement with Fidelity. As far as I've seen, they don't care about verifying your medical expenses. They simply release the funds. It is up to the IRS to decide later whether to ask for further documentation or audit you.
I haven't used HSA so far to reimburse myself for our family medical expenses because our medical expenses currently are reasonably small and we can afford to pay out of pocket. I'm just keeping the HSA funds untouched as a sort of insurance against a big medical emergency.
Thanks for clarifying Nitin. Appreciate the great work you are doing on the blog. Godspeed, good luck!
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?
Hi Guru Prasad! You're right that India might tax Roth gains. I meant that one doesn't have to pay any taxes to the US on Roth withdrawals. I still have to research how India would tax Roth withdrawals. Haven't found definitive answers yet.
This post here https://www.thegalacticadvisors.com/post/401k-ira-india says that India might not, but they're not sure either! My only relief is that I hopefully don't have to worry about Roth withdrawals for many years to come :)
This has been discussed online many times over and no real conclusion. However, most say this would still be taxed in India like regular income if we withdraw while being a resident/ wont be taxed if withdrawn during (but US taxes on the gains). Thanks for the link.