Yes, in most cases: an internal transfer to India almost always counts as a severance from employment for 401(k) purposes, because your new India entity doesn't maintain the US plan. That makes your account rollover eligible even though you never resigned.
The test people run is "did I quit?" The plan runs a different one: does your new employer actually sponsor this plan?
Quick check: does this apply to you?
- Your employer moved you onto a separate legal entity's payroll in India, not just a remote-work arrangement under your existing US employer.
- You haven't yet confirmed with HR or your plan administrator whether that India entity is listed as a participating employer in your 401(k) plan.
- You're assuming "I didn't resign" settles the question either way.
If all three are true, the rest of this article is about you.
The employer test, not the resignation test
You didn't resign, so it feels like nothing should change. That instinct is what trips people up.
Under Treas. Reg. Section 1.401(k)-1(d)(2), you have a severance from employment when you stop being an employee of the employer that maintains the plan. The regulation is explicit: severance does not occur only when your new employer, in connection with the transfer, keeps maintaining that same plan for you.
Read that backward. If your new employer does not maintain the plan, you have severed, regardless of whether you resigned or whether the two companies share a parent, a logo, or a Slack workspace.
What "maintains the plan" actually means
A controlled group of companies is treated as one employer for some qualified-plan purposes, and that leads a lot of people to the wrong conclusion. Moving within the group doesn't automatically avoid severance.
Benefits counsel at firms like Reinhart Boerner Van Deuren have written that the real test is narrower. Is your specific new employing entity a participating employer actually listed in the plan document, with its own adoption of that exact 401(k) plan?
A quick example:
Arjun, a software engineer at a US company, accepts an internal transfer to its Bangalore office. Same manager, same team, same corporate family, but a new employment contract under the India subsidiary. His Summary Plan Description lists exactly one participating employer: the US parent. The day his India contract takes effect, he has a severance from employment under the plan's own terms, even though nothing about his job title changed and he never handed in a resignation letter.
A US-sponsored, ERISA-governed 401(k) plan almost never extends to an India-based payroll entity, because Indian labor and retirement law governs that entity's benefits instead. So the parent company can be identical on both sides of your transfer, and you can still have severed the moment your paycheck starts coming from the India entity.
I'd treat a direct rollover request as the default move here, not a nice-to-have.
What a 401(k) rollover actually gets you after the transfer
Severance from employment doesn't move the money by itself. It opens the door to two paths, and picking the wrong one is expensive.
A direct rollover moves the balance trustee-to-trustee, from the 401(k) custodian straight into a Traditional IRA. No check ever lands in your hands, and no tax gets withheld.
An indirect rollover sends the money to you first. The plan withholds a chunk of it before you ever see a cent.
The one number that decides this: a direct rollover withholds nothing. An indirect one withholds 20% if you're still a US taxpayer, or roughly 30% once you're a nonresident alien. Either way, that's real money you have to find from somewhere else within 60 days.
Which rate applies depends on your US tax status at the time, not on the transfer itself:
- Still a US person for tax purposes: the plan withholds a mandatory 20% for federal tax under Section 3405.
- Already a nonresident alien: the plan instead withholds under nonresident alien withholding rules in IRC Section 1441, typically 30% unless a tax treaty reduces it.
- Either way: you have 60 days to deposit the full original balance into an IRA, or the withheld portion counts as a taxable distribution.
Most people who get burned here didn't choose the indirect route on purpose. Their plan simply defaulted to it because nobody asked for a direct transfer, which is exactly the mistake covered by the IRS's own rules on retirement plan rollovers.
Once the balance actually lands somewhere, the full menu of what to do with a US 401(k) as an NRI I wrote covers the options from there.
Before you request anything, ask the plan administrator three things:
- Is your transfer coded as a severance event on the plan's own records?
- Is a direct rollover available?
- Is your account already flagged or restricted because of a foreign address?
That third question matters more than people expect, and it's not hypothetical.
Who this applies to
The eligibility analysis under Treas. Reg. 1.401(k)-1(d)(2) doesn't care about immigration status. It cares about which entity is now your employer of record.
| Your situation | Severance from employment for 401(k) purposes? |
|---|---|
| Internally transferred onto a separate India payroll entity within the same corporate family | Yes, in nearly every case, because that entity doesn't maintain your US plan |
| Same US employer, working remotely from India, with no change of employing entity | No, in nearly every case. No employer change generally means no severance |
| Transferred to an India entity that happens to be listed as a participating employer on the plan | No. Uncommon for a standard US 401(k), but plan design varies, so verify it |
| Green card holder or US citizen, internally transferred to an India entity | Yes, same as the first row. What differs afterward is how the resulting IRA gets taxed, not whether it's eligible |
What happens to the money afterward, once it's actually in an IRA, is covered in the 401k withdrawal strategy guide I wrote.
What to do about it
- Ask HR or your plan administrator, in writing, whether your India transfer is being treated as a severance from employment on the plan's books.
- Pull your Summary Plan Description and check the list of participating employers yourself. Don't rely on a verbal answer from HR alone.
- If you're eligible, request a direct trustee-to-trustee rollover into a Traditional IRA. This sidesteps the withholding problem entirely.
- Confirm your IRA custodian will open and hold an account for someone with an India address before you initiate anything. Not every custodian will.
- Once the balance is sitting in an IRA, the next decision is timing, not eligibility. That's covered in the 401(k) vs IRA vs early withdrawal exit strategy guide I wrote, and it ties into your RNOR window back in India.
If the honest answer to any of steps 1 or 2 is "I don't know," that's the actual next action here, not a rollover decision. Get the document before you make the call.
Common misreadings
Staying with the same company is not what decides this. The plan looks at the specific legal employer named in its own document, not the parent brand on your original offer letter. Same company culture, different employer of record, different answer.
Leaving a 401(k) alone until you decide feels safe, and it isn't always. Plan custodians frequently restrict or freeze accounts once they see a foreign address on file, and some will force a distribution on their own schedule regardless of what you'd prefer.
A rollover does not cost you tax-deferred treatment. That belief has it backward: a properly executed rollover, direct or a timely indirect one, keeps the full balance tax-deferred. Only an actual cash-out, or a botched 60-day window, triggers tax, along with the 10% early-withdrawal penalty if you're under 59.5.
Where to go from here
Pull your Summary Plan Description before you do anything else. It's the one document that actually tells you whether your India entity is a participating employer.
I'd rather see someone spend twenty minutes reading it than guess and end up stuck in an indirect rollover's 60-day window.
If you want a second set of eyes on your plan language or on sequencing the rollover against your RNOR timeline, that's worth bringing to an advisor before you call the custodian.
Frequently asked questions
Can I transfer my 401(k) to India after an internal company transfer?
Not directly. There's no mechanism to move a 401(k) account itself into an Indian financial system. What you can do, once you've had a severance from employment, is roll the US account into a US-based Traditional IRA, which you continue to hold and manage from India.
Do I lose my 401(k) if my employer moves me to its India office?
No. Your account balance and its tax-deferred status are unaffected by the transfer itself. What changes is whether you can keep contributing to that plan and who has the authority to touch the account.
The full guide to what happens to a 401(k) after you leave a plan's employer I wrote walks through what comes next.
How do I roll over a 401(k) from one employer entity to another?
You request a direct trustee-to-trustee transfer: your 401(k) custodian sends the balance straight to the new account's custodian, most often a Traditional IRA, with no check issued to you and no tax withheld.
The guide to choosing between a 401(k) and an IRA I wrote covers what to weigh once the money lands.
Can I roll over my 401(k) without a penalty after an internal transfer?
Yes. A properly executed rollover, whether direct or a timely indirect one within 60 days, carries no penalty and no immediate tax, regardless of your age. The penalty only applies to an actual cash-out.
What is the biggest mistake people make when rolling over a 401(k) after an internal company transfer?
Defaulting into an indirect rollover without asking for the direct option. The plan withholds money before the check reaches you: 20% if you're still a US taxpayer, or nonresident alien withholding of around 30% once you're not.
You then have to make up that shortfall out of pocket within 60 days to roll over the full original balance, or it counts as a taxable distribution.
Does staying with the same parent company but changing payroll entities count as quitting my job?
No, and that's the exact confusion this article exists to clear up. Quitting and severance from employment are different legal concepts.
You can have a severance from employment for 401(k) purposes, triggering full rollover eligibility, without resigning, being terminated, or changing what you do day to day.