For NRIs living in the United States, retirement planning involves navigating two tax systems—India and the U.S.—while optimizing investment growth, minimizing tax liability, and preserving long-term wealth. Asset location and withdrawal sequencing are advanced strategies that help NRIs align their global portfolios with U.S. tax rules and cross-border planning goals.
Asset Location: Placing Investments for Tax Efficiency
Asset location refers to the strategic placement of investments across taxable, tax-deferred, and tax-free accounts based on how those assets are taxed under U.S. law.
Key U.S. Account Types:
- Taxable Accounts: Standard brokerage accounts; subject to annual taxation on dividends, interest, and capital gains
- Tax-Deferred Accounts: Traditional IRA, 401(k); taxed upon withdrawal
- Tax-Free Accounts: Roth IRA, Roth 401(k); qualified withdrawals are tax-free
India-Based Accounts (for NRIs):
- NRE Accounts: Interest is tax-free in India; may be taxable in the U.S.
- NRO Accounts: Interest is taxable in India and reportable in the U.S.
- Indian Mutual Funds/Stocks: Subject to Indian capital gains tax; U.S. may treat some as PFICs (Passive Foreign Investment Companies), triggering complex tax reporting
Asset Placement Guidelines:
| Asset Type | Optimal Location | Rationale |
|---|---|---|
| Bonds / REITs | Tax-Deferred | Ordinary income taxed at higher rates |
| U.S. Equities (buy-and-hold) | Taxable | Favorable long-term capital gains treatment |
| High-growth assets | Roth | Maximize tax-free compounding |
| Indian assets | NRE/NRO + U.S. reporting | Consider DTAA and PFIC rules |
Note: NRIs must comply with FBAR and FATCA reporting for foreign accounts exceeding thresholds.
Withdrawal Sequencing: Managing Retirement Income Across Borders
Withdrawal sequencing is the order in which retirement assets are accessed. For NRIs in the U.S., this involves coordinating withdrawals from domestic and foreign accounts to minimize tax exposure and optimize retirement income.
General Framework:
- Taxable Accounts First: Use capital gains and basis recovery for lower tax impact
- Tax-Deferred Accounts Next: Withdraw strategically to manage tax brackets and RMDs
- Roth Accounts Last: Preserve for flexibility, legacy, or high-income years
Cross-Border Considerations:
- RMDs Begin at Age 73: Required for traditional IRAs and 401(k)s
- Roth IRAs Have No RMDs: Ideal for long-term tax-free growth
- Indian Withdrawals: May be taxed in both countries; use DTAA to claim credits
- Currency Conversion Timing: Withdraw when exchange rates are favorable
- Medicare & Social Security: Coordinate withdrawals to manage MAGI and avoid IRMAA surcharges
Why This Matters
Strategic asset location and withdrawal sequencing can:
- Reduce lifetime tax liability across U.S. and Indian jurisdictions
- Preserve eligibility for U.S. benefits (e.g., Medicare, Social Security)
- Improve portfolio longevity and repatriation efficiency
- Enhance estate planning outcomes for heirs in both countries
Next Chapter: Roth Conversion Strategy & Retirement Income Ladder
Next, we’ll explore how NRIs in the U.S. can execute Roth conversions at optimal times and build a retirement income ladder that minimizes tax surprises. This chapter unlocks powerful tools for controlling taxable income and maximizing tax-free growth across borders.