Taxman, beat it!

One common thought people returned from US to India have is - how to distribute the money in IRA and 401K without penalty, since most of the returnees are well below 59 1/2 years

Rule #: Distributions from IRA (that aren't qualified for tax benefits) before the age of 59.5 will be subject to 10% penalty, and the regular income tax on the withdrawn amount.

The suggestion below looks credible...

In case you have traditional IRA accounts (or will have when you rollover your 401ks), do not convert them into Roth right away (since Roth has tax free withdrawls). Wait for the year when you have little or no US income then do the conversion … so you pay no taxes at all on the conversion. Pass this on to anyone else who has made the migration back to India as well.

More details here …. http://www.fatwallet.com/t/52/624589/