Roth Accounts and the HSA When You Leave

Roth accounts and a health savings account are the two US accounts that look simplest to take abroad, because qualified money comes out with no US tax. Both have rules that change when you leave, and the Indian sections read for this book do not mention either one. This chapter covers what the US asks of you before, during and after the move, what India's tax law does with them as far as its text can be read, and where the honest answer is "ask your Chartered Accountant".

Roth money: the US side

A Roth IRA or a Roth 401(k) holds money you already paid tax on. Withdrawals that are "qualified" owe no US tax. IRS Publication 590-B says a Roth IRA distribution is qualified when it comes after the five-year period that starts with the first tax year for which you contributed, and is made on or after age 59½, because of disability, to a beneficiary after death, or under the first-home exception. Leaving the United States is not on the list. A nonresident who takes a qualified payout owes no US tax on it.

The rules that catch people are the ones for money that is not yet qualified.

• Ordering. A non-qualified Roth IRA withdrawal comes first from your regular contributions, which are not taxed, then from conversion and rollover amounts, oldest first, then from earnings. Only earnings are taxable.
• Five years on conversions. If you convert pre-tax money to a Roth IRA and take a conversion amount out within five years, the 10% additional tax on early distributions can apply to the part you had to include in income. Each conversion has its own five-year clock, separate from the clock that decides whether a distribution is qualified.
• A Roth 401(k) is not an IRA. Its qualified distributions are also tax-free, but it follows plan rules and its own timing tests. Read Publication 590-B and the plan's rules before you move it into a Roth IRA, because the two accounts do not share every clock.

None of this changes because you live in India. What changes is how the payout is paid to you and what India makes of it.

Converting before you leave

A Roth conversion adds the converted amount to that year's taxable income. The year you stop working in the US and have not yet moved can be a low-income year, and it can be a year in which the standard deduction still applies, because you are still a resident for the whole of it. In the year of the move, a dual-status return has no standard deduction (IRS Publication 519), which changes the arithmetic.

After the $16,100 standard deduction, a conversion of $40,000 leaves $23,900 taxable and about $2,620 of federal tax, in the 12.0% bracket. Converting $90,000 brings the tax to about $10,970 and the top bracket reached to 22.0%. State tax comes on top. The Roth conversion calculator uses your own income and state, and the Roth or traditional if leaving the US calculator puts a later tax rate on the other side of the comparison.

Roth money: the Indian side

For a non-resident or an RNOR, India taxes foreign income only if it arises or is received in India (section 5). A qualified Roth payout, which arises and is received outside India, is outside the Indian net in those years, on the sections read for this book.

In a ROR year the text is silent. The sections of India's Income-tax Act, 2025 read for this book do not name a Roth account, and the relief for foreign retirement accounts in section 158 is built around an account whose income "is taxed by that notified country at the time of withdrawal or redemption and, not on accrual basis". A qualified Roth withdrawal is never taxed in the US, so a Roth sits awkwardly in that wording, and whether it is a "specified account" is open: no source read settles it. The premise of section 158 is that a resident would otherwise be taxed on income as it accrues, and if the relief does not apply, that premise is the risk. For an account you intend to keep into your ROR years, put the question to your CA before the window ends, with the account statements in hand.

The practical consequences people weigh:

• Withdraw in the window. If a qualified payout is taken while RNOR and kept outside India, the Indian text read here does not reach it. This is the situation behind the common question about emptying a Roth in the first two years back, and the remittance point in chapter 3 applies equally.
• Convert before the window. A conversion before you land is US income only, taxed at the rates above, and the converted money then grows in an account whose Indian treatment is unsettled.
• Leave it and ask. Where you will not need the money for years, the decision can wait for a CA's reading.

The HSA when you leave

An HSA belongs to you, and it stays yours when you leave the US. What changes is what you can put in.

• Contributions need eligibility. You can contribute only while covered by a high-deductible health plan and otherwise eligible. When you leave the US plan, you cannot add to the account. The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage, including any employer money.
• The last-month rule has a trailing condition. If you contributed a full year's amount because you were eligible on December 1, you must stay eligible through the end of the following year. If you stop being eligible for reasons other than death or disability, the extra contributions become income and carry a 10% additional tax (IRS Publication 969). A move in the year after a large December-based contribution can trigger it.
• Qualified medical expenses stay tax-free. Distributions for them owe no tax. Other distributions are taxable and, before age 65, carry an additional 20% tax. Publication 969 defines qualified expenses by reference to the medical expense deduction and does not say separately how care received in India is treated, so keep receipts, the conversion rate on the day, and ask your preparer.
• Death and beneficiaries. A spouse who is named as beneficiary takes over the HSA; for anyone else it stops being an HSA and becomes taxable to them. Check the beneficiary before you leave.
• Form 8889 is filed with your Form 1040 or 1040-NR for any year with HSA activity.

A balance of $25,000 left invested for 15 years at 6.0% reaches $59,914. If the money is used for qualified medical expenses it comes out tax-free in the US, which makes the account a reserve for health costs in later life, wherever they arise.

On the Indian side, the sections read for this book do not mention an HSA. In RNOR years the same reasoning as for the Roth applies. After that, dividends and gains inside the account could be treated as accrued income of a resident, and an HSA is a health account, and section 158 covers an account kept "for his retirement benefits", so that relief is unlikely to be the fit. This is a question for your CA, not a settled point.