Many NRIs working in the US notice something called a cash balance plan in their payslips or benefits portal, but the cash balance plan often remains unclear. It might look like a savings account, but it quietly behaves like a pension. 

NRIs have to think about FATCA compliance, DTAA rules, dual taxation, visa timelines, and cross-border transfers, which makes the NRI retirement plan far more complex for those working in the US with cash balance retirement plans.

This blog explains the NRI cash balance retirement plan in simple terms, how it works, who can join, and what to consider before relying on it for your long-term future.

What Is a Cash Balance Plan for NRIs? 

A cash balance pension plan is a defined-benefit pension under US law, but it doesn’t look like one. On paper, it resembles a savings account with an up-to-date balance. Each member receives an annual “hypothetical account balance”, which grows through two elements:

Pay Credits – a fixed percentage of your salary contributed by the employer
Interest Credits – added annually at a fixed or variable rate.

Unlike a 401(k), employees don’t pick where the money is invested. The employer is responsible for funding and managing contributions, helped by actuaries who calculate how much should be added each year. That’s why cash balance plans for NRIs in the USA tend to feel more predictable and less dependent on market swings.

How a Cash Balance Retirement Plan Differs From Traditional Pensions and 401(k)s?

Here’s how it differs from traditional pension plans:

Traditional pensions use a long formula that takes into account service years, pay history and retirement age. Cash balance plan for NRIs replaces that complexity with a clearer individual balance. Meanwhile, 401(k)s depend on market conditions, whereas cash balance plans grow at a set interest rate defined by the plan.

Why Cash Balance Plan Matters for NRIs?

Some of the reasons why a cash balance plan is important for NRIs are:

• Predictable Retirement Growth: Volatile markets are risky for someone planning a move abroad. Cash balance plans minimise shocks through a predictable interest credit system.

• Higher Contribution Capacity: IRS rules allow large contributions; the older the employee, the higher the permitted amount. This benefits NRIs who start an NRI retirement plan slightly later in their careers.

• Portability Across Countries:  Cash balance retirement plans generally cannot be transferred directly into retirement schemes in India or the UAE; instead, when you leave the U.S., most plans allow you to take a lump-sum distribution of your vested balance and roll it over into an IRA or another qualified U.S. retirement plan.

Eligibility Rules for Cash Balance Retirement Plans for NRIs

You may qualify if you:

• Work for a US company offering this plan

• Receive salary via US payroll.

• Hold an H-1B or L-1 visa (not officially listed by IRS, but commonly included)

Self-Employed NRIs

NRIs running US-based LLCs, S-Corps or sole proprietorships can create their own cash balance plans, but not casually. They must follow:

• IRS Sections 415 and 404

• Annual actuarial valuation

• Defined-benefit compliance standards

This is usually suitable for higher earners looking to reduce taxable income while setting aside a disciplined NRI retirement plan fund.

How Cash Balance Retirement Plans Work?

Employees usually don’t contribute directly. The employer funds the plan, and contributions increase with age, which makes it attractive for professionals with several years of experience.

IRS limits change each year and depend on:

• Age

• Income

• Years of participation

• Actuarial calculations

A number of planners suggest using a cash balance plan alongside a Solo 401(k) for tax optimisation, especially for self-employed NRIs.

Interest credits may be:

• Fixed – e.g., 5% per year

• Index-linked – tied to market benchmark

• Treasury-based – often linked to long-term US Treasury yields.

These credits, rather than stock market results, largely decide how your balance grows. For someone living abroad later, predictability can simplify retirement planning and currency conversion calculations.

Vesting, Portability and International Moves

Vesting refers to the ownership claim that the employee has towards the employer contributions in a cash balance retirement plan. Two formats define ownership:

1. Cliff vesting: full ownership after a fixed number of years

2. Graded vesting: partial ownership that builds gradually

Once vested, you own the balance even if you move out of the US, and the employer cannot take back vested funds. 

Most plans allow members to roll their balance into an IRA. This is one of the biggest advantages over older pension formats.

If you leave the US, you usually cannot shift it into an Indian scheme like NPS or EPF. Instead, NRIs often retain the balance in a US IRA and withdraw later, ideally at retirement age, to avoid penalties.

Payout & Withdrawal Rules

Here’s how withdrawal rules differ:

NRIs retiring outside the US need to keep these in mind:

• Currency conversion costs

• Double taxation risk

• RNOR → ROR tax residency shift in India

Most NRIs avoid early withdrawal and keep the funds in a US-based IRA until distribution age.

Taxation for NRIs 

With a cash balance retirement plan, NRIs should understand the taxation policies as given below:

In the United States, 

• Employer contributions are pre-tax.

• Growth is tax-deferred

• Withdrawals are taxed as ordinary income.

• FATCA and FBAR may apply depending on circumstances

In India,

Tax depends on residency status under Section 5 of the Income Tax Act:

The India–US DTAA helps avoid double taxation, but correct filing and documentation are essential.

What to Assess Before Relying on a Cash Balance Plan

Some of the key risks to consider are:

Conclusion

A cash balance plan can play a strong role in an NRI cash balance retirement plan strategy, but clarity about the cash balance plan's meaning is essential before depending on it for your future. It brings predictable growth, higher contribution potential, and moderate portability, especially compared to traditional pensions.

However, it’s not suitable for everyone. Future residency, tax timing and withdrawal strategy matter more than simply being enrolled. If handled smartly, this plan can remain useful even after moving away from the United States. The key is timing, not just participation, and clarity about where life might lead next.

Want to create flexible retirement plans as an NRI? Explore the options available at Rupeeflo today!

FAQs

1. Can I still use the cash balance retirement plan after leaving the US?

Yes. Most NRIs roll it into an IRA and continue to hold it while living abroad.

2. Can NRIs create their own cash balance retirement plan?

Yes, through a US-registered business with actuarial support. It requires formal IRS compliance.

3. Is it better than a 401(k)?

For higher earners, often yes. Especially after age 40, contribution limits can be significantly higher.

4. Will India tax income from cash balance retirement plan after returning?

Once ROR status begins, global income becomes taxable, but DTAA helps prevent double taxation if filed correctly.