Should you decide to invest in a Traditional IRA and receive a tax deduction for your contribution, the amounts that you later withdraw will be subject to income tax and an additional 10% early-withdrawal penalty. The penalty will be waived if you meet an exception.
Given that you are a non-resident alien (determined by your visa category- H1B), your withdrawal may not be subject to state taxes. You want to ensure that your IRA custodian indicates your residency status on your account file.
The ease with which you will be able to make withdrawals from your IRA is determined by the IRA product you invest in and/or the operational policies and procedures of your financial institution. For instance, if you invest in certificates of deposit (CDs) at a commercial bank, you are permitted withdrawals on or after the date the CD matures. Withdrawals before this maturity date may result in severe penalties, assessed by the financial institution. This is in addition to income taxes and any applicable IRS early-withdrawal penalties. On the other hand, some financial institutions offer IRA products that permit withdrawals at any time, without any penalty being assessed by the financial institution.
Be sure to check with your financial institution regarding the features and benefits of its IRA products, its policies and procedures, and the options available to you.
Please note that IRA distributions sent to you at an address outside of the United States are subject to mandatory federal withholding of 10%. Should you decide to waive this 10% withholding, your distribution will then be subject to the treaty rate of your country of residence. The treaty rate ranges from zero to 30%. Special documents are required for requests to waive the default 10% withholding.
This question was answered by Denise Appleby