For many professionals, an employer sponsored retirement plan such as a 401(k) or 403(b) is one of the biggest financial advantages of working in the United States. The company match alone is essentially free money for your future.
But when you leave a job and move to a new role or new direction in life there is one important step you should not overlook. Deciding what happens to your old 401(k).
You are not alone if you have left one behind. Millions of accounts worth trillions of dollars are sitting untouched simply because people forget. As an NRI building your long term financial foundation both in the United States and abroad this is something you want to stay on top of.
Below are the options available to you organized in a clear way that supports long term planning.
1. Move the Money Into an Annuity
Many NRIs are not aware that they can roll over a former employer’s retirement plan — such as a 401(k) or 403(b) — directly into an IRA annuity. This can provide strong guarantees, principal protection, and predictable retirement income.
You can choose from
• Fixed Annuity, which focuses on safety, guaranteed interest, and steady growth
• Fixed Indexed Annuity, which offers market-linked growth with downside protection
• Variable Annuity, which offers broader market exposure with tax-deferred growth but includes market risk
Why NRIs consider annuities
• Access to long-term guaranteed income options
• Protection from market volatility
• Continued tax-deferred growth in a rollover IRA
• The ability to structure lifetime income, even if you plan to retire abroad (subject to carrier rules)
If you want long-term stability and income that lasts throughout retirement, this strategy is worth serious consideration.
2. Roll Over Your 401(k) Into an IRA
For many NRIs, an IRA offers greater flexibility and control after leaving an employer.
You get
• No taxes on a direct rollover from your employer plan
• A wide range of investment choices including mutual funds, ETFs, stocks, and bonds
• The potential for lower costs depending on the investments you choose
• One place to consolidate retirement accounts from previous employers
One consideration: employer plans generally provide stronger federal creditor protection under ERISA. For most NRIs, however, the added flexibility and investment choice of an IRA make it a strong option for long-term planning.
3. Roll the Money Into Your New Employers Plan
If you are moving to a new employer in the United States, you may be able to roll your old 401(k) or 403(b) into your new company’s retirement plan.
Ask these questions
• Does the new employer’s plan accept rollovers
• Are the investment choices strong and reasonably priced
• Do you want the stronger federal creditor protection that an employer plan (ERISA) usually provides
• Are you approaching the age when Required Minimum Distributions (RMDs) will begin
If you prefer simplicity, want to keep everything in one place, or value stronger protection, rolling into the new employer plan can be a smart move.
4. Leave the Money in Your Old Employer Plan
This option can be beneficial only if the plan offers
• Excellent, low-cost investment options
• Institutional share-class funds that may be cheaper or higher quality than what you can access in an IRA
Before choosing this route, make sure you understand whether the plan charges additional fees or places restrictions on former employees who keep assets in the plan.
For NRIs, leaving money in a former employer plan may seem convenient, but it can make long-term tracking more difficult — especially if you relocate back to India or move to another country.
5. Take a Distribution
You can withdraw some or all of the funds, but this is usually the least beneficial choice for long-term planning.
What happens if you withdraw
• You will owe income taxes on the amount you take out
• If you are younger than 59½, an additional 10 percent penalty may apply (unless an exception applies)
• The money permanently loses its tax-advantaged growth
For NRIs focused on long-term wealth building, this is rarely the best path.
The Rule of 55
If you leave your job in or after the year you turn 55, you can take penalty-free withdrawals from that employer’s plan under the “Rule of 55.” This does not apply to IRAs or to plans from earlier employers.
Public safety professionals such as firefighters and police officers can access this rule starting at age 50.
If you do not need the money right away, keeping it invested is usually the better long-term choice.
Final Thoughts
Your old 401(k) is an important part of your overall financial strategy as an NRI. What matters most is making an intentional choice instead of letting the account be forgotten.