Retirement Plan in US & India: Buckets
One of the most critical aspects for NRIs in building a retirement plan in US is recognizing that their investments are often split across two geographies: the US and India. These are your two retirement buckets. If you don’t view them as a single coordinated portfolio, you may end up with inefficiencies, overlap, or even tax complications.
Also read: Indian Mutual Funds that You can Invest in as a US NRI
Rajiv’s Fragmented Portfolio
Rajiv, a 42-year-old software engineer working in New Jersey, had accumulated a mix of assets over time:
- A 401(k) through his US employer
- A Roth IRA opened a few years ago
- A brokerage account invested in US mutual funds
- Fixed deposits (FDs) in his NRE account in India
- A 2BHK flat in Bangalore, purchased five years ago
- A portfolio of Indian mutual funds invested in growth equity schemes
The problem? He had no clear understanding of how these different investments supported a single retirement goal. His Indian assets were not being tracked against inflation or currency risk. His US assets were underutilized. He also hadn’t decided whether he would live his retirement plan in US or India.
The Insight
As an NRI, you must begin by listing all your assets—regardless of where they are held—and ask yourself: are these working toward one unified retirement strategy?
If you’re planning to retire in India, your focus should shift toward INR-based cash flow generation and a plan to repatriate US assets eventually. If you wish to live your retirement plan in US, then your India holdings need to be reconsidered for liquidity and tax treatment. If you’re unsure, it’s wise to maintain flexibility in both countries while keeping future conversion and tax rules in mind.
Rajiv, for instance, realized he was overexposed to real estate in India and underinvested in tax-advantaged US accounts. He also didn’t have a plan to consolidate these investments or understand how they might interact during retirement.
Action Points:
- Take complete inventory of assets in both countries.
- Decide your most likely retirement location—this determines the base currency and cash flow needs.
- Evaluate assets for tax efficiency, liquidity, and alignment with long-term retirement goals.
- Use platforms or advisors who can help manage a global portfolio.
Max Out on the Benefits of Retirement Plan in US
Many NRIs rush to invest in Indian mutual funds or real estate thinking they offer higher returns. But in the process, they often ignore powerful tools for building a powerful retirement plan in US—tools that not only offer tax benefits but also employer contributions, which are essentially free money.
Rajiv’s Missed Opportunity
Rajiv was contributing around $10,000 per year to his 401(k). But he wasn’t maxing out the full limit ($23,000 in 2025 for those under 50), and more importantly, he was missing out on his employer’s matching contribution of 6%. On a $120,000 salary, that meant leaving $7,200 on the table every year.
He also assumed that a Roth IRA was only for US citizens and ignored it completely, despite being eligible through a backdoor method.
The Insight
If you’re an NRI working in the US, your first priority should be to fully utilize the retirement savings accounts that offer:
- Tax deferral or exemption
- Employer matches
- Long-term compound growth
These accounts give you a head start on tax-efficient retirement planning that Indian investments often can’t match due to repatriation rules and double taxation issues.
Retirement planning in US: Key Accounts
401(k):
- Contribute up to the IRS limit ($23,000 in 2025).
- Always contribute enough to get the full employer match—it’s free money.
- Choose low-cost, diversified index funds within the 401(k) for optimal returns.
Roth IRA:
- Contribution limit is $7,000 for 2025.
- If your income exceeds the eligibility range, use the backdoor Roth method: contribute to a traditional IRA and convert it to Roth.
- Qualified withdrawals in retirement are completely tax-free, making this a powerful tool for future passive income.
HSA (Health Savings Account):
- If you’re enrolled in a high-deductible health plan, contribute to an HSA.
- Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for medical expenses—making it a triple tax-advantaged account.
- Even if you don’t use it now, it can act as a retirement fund for future healthcare costs.
Rajiv ultimately restructured his retirement plan in US by first maxing out his 401(k) and Roth IRA before considering new investments in India. This helped him secure tax benefits in the US, reduce his current taxable income, and build a strong foundation for long-term retirement.
3. Avoid Double Taxation
One of the biggest concerns NRIs face when investing in both the US and India is double taxation. You earn income, pay taxes in one country, and then get taxed again when you bring that money into the other. If you don’t plan this well, you could lose a large portion of your retirement savings to taxes in both countries.
Rajiv’s Tax Trouble
Rajiv was earning interest from his NRE fixed deposits and dividends from mutual funds in India. Since these were in his NRE account, he assumed they were tax-free and didn’t declare them in his US tax returns. A couple of years later, he was flagged during an audit. Not only did he have to pay back taxes, but also penalties and interest.
What he didn’t realize is this: Even if your income is tax-free in India, it may still be taxable in the US, depending on how it’s classified.
Why This Happens
The US taxes its residents and citizens on global income. This includes:
- Interest on Indian FDs
- Dividends from Indian stocks and mutual funds
- Capital gains from selling property in India
India and the US have a Double Taxation Avoidance Agreement (DTAA), but that doesn’t mean you can skip reporting income in one country. It just means you can avoid paying tax on the same income twice by claiming foreign tax credits or using the right tax treaty clauses.
What You Can Do
- Always report global income in your US tax returns. Don’t hide Indian income thinking it’s outside the IRS’s reach.
- If you’ve already paid tax on that income in India, claim a Foreign Tax Credit (Form 1116) on your US return.
- Work with a CPA who understands both Indian and US tax systems.
- Keep good records: bank statements, tax deduction certificates, and proof of taxes paid in India.
Need help?
Once Rajiv started working with a cross-border tax advisor, he avoided unnecessary tax bills and planned his investments in a way that reduced overlap. For example, he moved some funds from NRO to NRE accounts and focused more on 401(k) and Roth IRA contributions in the US.
4. Manage Currency Risk Smartly
If you’re planning retirement in India but most of your money is in the US, or vice versa, you’ll have to deal with currency risk. The USD-INR exchange rate doesn’t stay still. And over 10–20 years, even small fluctuations can make a big impact on your retirement funds.
Rajiv’s Overlooked Risk
Rajiv had invested heavily in US mutual funds and was planning to retire in India. What he didn’t consider was how much money he would lose if the USD weakened or if the INR appreciated over time. If $1 = ₹75 today and drops to ₹65 by the time he retires, his dollar-based retirement fund will buy 13% less in India.
Currency swings are slow but steady — and over decades, they can shrink your purchasing power if not managed well.
What You Should Think About
Ask yourself:
- Where will you retire?
- In what currency will you spend most of your money during retirement?
- Will you need to convert large sums of money from USD to INR or vice versa?
If the answer is yes, you need to protect yourself from future exchange rate shocks.
Simple Strategies to Manage Currency Risk
- Balance Your Investments
If you’re planning to retire in India, consider moving a part of your portfolio to INR-based assets gradually. This could include Indian mutual funds, bonds, or even REITs. - Use a Systematic Transfer Approach
Instead of sending large sums from the US to India in one go, start transferring small amounts regularly. This helps average out exchange rate fluctuations over time. - Plan the Timing of Conversions
If you know you’ll need a big amount in 5 years (say for property or retirement), start planning the conversion in phases — not at the last moment when the rates may not be in your favor. - Consider Hedging Instruments (for advanced users)
Some mutual funds or international ETFs offer currency-hedged options, though these are more suitable if you’re investing large amounts or nearing retirement.
Rajiv’s takeaway was simple — since he planned to live in India, he gradually increased his Indian investments and reduced his dependency on the dollar. That way, he didn’t have to constantly worry about how USD-INR rates would affect his lifestyle after retirement.
5. Build Retirement Income Streams (Not Just a Lump Sum)
When most people think about retirement planning, they focus only on how much money they need. But equally important is how that money will be used to generate regular income after retirement. A big retirement corpus doesn’t automatically mean financial freedom—what matters is converting that lump sum into predictable income streams that last.
Rajiv’s Realization
Rajiv had accumulated close to $800,000 across his 401(k), Roth IRA, and other investments. He also had ₹1.5 crore invested in Indian mutual funds and real estate. On paper, this looked impressive. But when he started mapping out how he’d cover monthly expenses after retiring in India, he panicked.
He had:
- No rental income (the flat in Bangalore was used by his parents)
- No annuity or pension
- No dividend-paying investments
- And his 401(k) withdrawals would be taxable in the US
He realized he had built wealth but not income.
Why This Matters
In retirement, you need:
- Cash flow to cover your monthly living costs
- Stability to ride out market ups and downs
- Liquidity so you’re not forced to sell at the wrong time
If your entire portfolio is growth-focused or illiquid, you might struggle to cover everyday costs.
Ways to Build Retirement Income
- Retirement planning in US: US-Based Streams
- Systematic withdrawals from 401(k) or IRA accounts (keeping Required Minimum Distributions in mind after age 73)
- Dividend-paying ETFs or stocks
- Bond ladders or treasury notes for steady interest
- Retirement planning in India: India-Based Streams
- Monthly Income Schemes (MIS) from post offices or banks
- Dividend-paying mutual funds or blue-chip stocks
- Rent from real estate (if not used personally)
- SWPs (Systematic Withdrawal Plans) from mutual funds in INR
- Annuities
If you want guaranteed income, consider purchasing annuities in either country (with caution—fees and lock-in vary widely). They work like pensions and give you a fixed income for life or a set number of years.
After getting financial advice, Rajiv moved 20% of his investments into high-dividend funds and built a rental plan for a second property. He also created a plan to stagger his withdrawals from the 401(k) and Indian mutual funds so that he wouldn’t run into a cash crunch during market downturns.
6. Don’t Skip Estate Planning — Especially Across Borders
Estate planning isn’t just about passing on wealth when you’re gone. It’s also about making sure your money and assets are protected, taxes are minimized, and your loved ones aren’t stuck dealing with legal messes—especially when your assets are spread across two countries.
Rajiv’s Mistake (and Fix)
Rajiv had written a will in India in 2015. But it only covered his Indian assets—his flat, FDs, and mutual funds. His US-based assets (401k, Roth IRA, and brokerage accounts) didn’t have designated beneficiaries. If something were to happen to him suddenly, his wife (a US green card holder) would face delays, tax complications, and cross-border legal hurdles.
He thought he had done “some” estate planning—but in reality, he had left huge gaps.
What You Need to Cover
- Separate Wills
Create one will for Indian assets and another for US assets. Ensure they don’t conflict. Many NRIs skip the US will assuming the Indian one is enough—it’s not. - Name Beneficiaries for US Accounts
Your 401(k), IRA, and even brokerage accounts should have beneficiaries listed. This avoids probate and ensures smooth transfer. - Consider a Trust (Optional)
If your estate is large or complex, a trust can help avoid probate and manage inheritance better—especially if you have dependents with special needs or properties in multiple states or countries. - Power of Attorney & Medical Directives
These are important in both countries. If you’re incapacitated, who makes financial and health decisions? Choose someone you trust and have legal documents in place in both jurisdictions. - Understand Cross-Border Inheritance Tax
The US has an estate tax (though the exemption is quite high—over $13 million). But if your heirs are in India, or you own Indian real estate, Indian succession laws come into play. Plan accordingly.
Rajiv updated both wills, listed his wife and son as beneficiaries in his US accounts, and worked with a cross-border estate planner to make sure all documents were legally valid in both countries. He now had peace of mind that his family wouldn’t be left untangling paperwork if anything happened.
FAQs
1. Do NRIs in the US need to report income from India in their US tax returns?
Yes, US tax residents must report their global income—including interest, rent, and capital gains from India. Even if it’s tax-free in India (like NRE FD interest), it may be taxable in the US.
2. What is the Double Taxation Avoidance Agreement (DTAA) between India and the US?
DTAA helps NRIs avoid being taxed twice on the same income. You can claim relief via foreign tax credit (Form 1116) on your US return for taxes paid in India.
3. Is it better to retire in India or the US financially?
It depends on lifestyle, healthcare, and financial goals. India offers lower costs, while the retirement plan in US offers better healthcare access and tax-advantaged accounts like 401(k) and Roth IRAs.
4. How can NRIs protect their retirement savings from currency fluctuations?
You can gradually build INR-based investments, transfer funds systematically, or consider currency-hedged products if appropriate. Planning ahead helps reduce conversion risk.
5. Can I use my 401(k) or Roth IRA after moving to India permanently?
Yes, you can access your 401(k) or Roth IRA even after moving, but withdrawals may be taxed in the US. Ensure you factor in foreign exchange and potential reporting requirements in India.
6. What Indian investment options are good for NRI retirement income?
SWPs (Systematic Withdrawal Plans), post office schemes, dividend-yielding mutual funds, and rental income from real estate can be good income sources.
7. Do NRIs need separate wills for India and the US?
Yes. Assets located in India and the US follow different inheritance laws. Separate wills ensure smoother estate transfer and avoid legal conflicts between jurisdictions.
