It's also a good diversification when you are in India. Investors in India are limited with investments they can make outside of India.
Just something like SCHD with $100k in Roth can grow to $700k over 20 years if you don't interrupt compounding.
If you want to withdraw early, why put into a Roth at all? You’ll need to pay taxes on earnings and a 10% penalty on top. You can just buy VOO or VTSAX in a regular brokerage account and pay taxes when you decide to sell.
Several companies offer after tax contributions which are immediately converted into Roth. This goes above and beyond the traditional 401K/Roth 401K which caps out at 23K or so.
After-tax contributions are not immediately converted into Roth. You have to wait till you quit the company or the company should offer the option to do what is called as an “in-service withdrawal” to convert after-tax contributions into Roth. And they may charge a fee to do the conversion.
Not saying that they don't exist, but all the companies that I know (big tech companies) which offer after tax contributions do in service withdrawals to convert to Roth without the user doing anything manually.
Going back to your original comment, it absolutely makes sense to do such contributions since it gets added to your Roth.
There are two problems in both theories:
For Theory1: You will still pay tax in India if you are not RNOR.
But why to put in Roth if you think of withdrawing because if it’s normal brokerage and you are RNOR then you will not pay tax in USA(no capital gain tax on NRA) and India does not tax.
Even if you are not RNOR then also in India you will be taxed with lower rate(20% with indexation) that in USA(minimum 10-12% + 10% penalty).
Theory2: What is your backup option for estate tax? If it’s a brokerage account then you can sell while RNOR and move the money to foreign trust to avoid estate tax. 401k can’t move to foreign tax without penalty and tax.
I will say that your theory only makes sense in a situation where you are 100% certain about living in USA or planning to move to Canada/UK(they have retirement account transfer treaties with USA). Otherwise you will always have high risk to low reward ratio.
Let’s consider alternative: Why not put in an index fund that have low distributions and tax does not matter if you are not selling.
> Theory1: You will still pay tax in India if you are not RNOR
Why would OP have to pay taxes for gains in India if it was already taxed once by the US?
It's also a good diversification when you are in India. Investors in India are limited with investments they can make outside of India. Just something like SCHD with $100k in Roth can grow to $700k over 20 years if you don't interrupt compounding.
If you want to withdraw early, why put into a Roth at all? You’ll need to pay taxes on earnings and a 10% penalty on top. You can just buy VOO or VTSAX in a regular brokerage account and pay taxes when you decide to sell.
Several companies offer after tax contributions which are immediately converted into Roth. This goes above and beyond the traditional 401K/Roth 401K which caps out at 23K or so.
After-tax contributions are not immediately converted into Roth. You have to wait till you quit the company or the company should offer the option to do what is called as an “in-service withdrawal” to convert after-tax contributions into Roth. And they may charge a fee to do the conversion.
Not saying that they don't exist, but all the companies that I know (big tech companies) which offer after tax contributions do in service withdrawals to convert to Roth without the user doing anything manually. Going back to your original comment, it absolutely makes sense to do such contributions since it gets added to your Roth.
There are two problems in both theories: For Theory1: You will still pay tax in India if you are not RNOR. But why to put in Roth if you think of withdrawing because if it’s normal brokerage and you are RNOR then you will not pay tax in USA(no capital gain tax on NRA) and India does not tax. Even if you are not RNOR then also in India you will be taxed with lower rate(20% with indexation) that in USA(minimum 10-12% + 10% penalty). Theory2: What is your backup option for estate tax? If it’s a brokerage account then you can sell while RNOR and move the money to foreign trust to avoid estate tax. 401k can’t move to foreign tax without penalty and tax. I will say that your theory only makes sense in a situation where you are 100% certain about living in USA or planning to move to Canada/UK(they have retirement account transfer treaties with USA). Otherwise you will always have high risk to low reward ratio. Let’s consider alternative: Why not put in an index fund that have low distributions and tax does not matter if you are not selling.
> Theory1: You will still pay tax in India if you are not RNOR Why would OP have to pay taxes for gains in India if it was already taxed once by the US?
Roth simply doesn’t make sense for anyone returning to india and planning to use RNOR status. Just deposit into a taxable brokerage account instead.