As a H1 visa holder & a possible candidate to go back to India in next 5-7 years, shall I max out 401k (MSFT match 50%)

Microsoft qwertyasd
Jul 11, 2018 19 Comments

Graduated last year...Currently 27 y.o.
Its been ~8 months now I have started with working in US and after clearing education loans, I was thinking of possible options to invest/save for the future.

I have started maxing out (15%) of ESPP since this period.

Regarding 401k, shall I max it out given that I want to buy a property in a year or two (and dont have much savings right now).
Also, per my understanding it will be a good option to go for pre-tax (roth) contrivutions rather than traditional 401k contribution. Which one should I go?

Can someone please give some financial advise?
Thanks.

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TOP 19 Comments
  • This comment was deleted by original commenter.

    • Microsoft qwertyasd
      OP
      Thanks. Can you please suggest which option shall I go (per my situation) for and why?
      Jul 11, 2018
  • Microsoft WoCE36
    Do max it out. After you leave MSFT, you will have the option of rolling out to IRA, which can be converted to Roth IRA without tax. You will essentially get the 401k money out tax free
    Jul 11, 2018 6
    • LinkedIn darker
      After leaving the US, If your US income is less than say $20k, total income (including foreign income) is less than say $100k, your US tax rate is 0% and your state income tax rate is 0% if you manage your Roth conversion correctly.
      Jul 12, 2018
    • Starbucks Mougli
      Not true, 401k is taxed before converting to roth
      Jul 12, 2018
    • LinkedIn darker
      Conversion to Roth is taxed but not penalized. It just so happens that if you convert a small amount, you will be in the 0% federal tax bracket. Talk to a CPA for options. Lots can be done here. Summary is Max out your 401k.
      Jul 12, 2018
    • Pinterest Ghgfv
      Agree
      Jul 12, 2018
    • Starbucks Mougli
      On a regular Roth account, earnings cannot be withdrawn but the money put in can be withdrawn anytime..but converting 401k to Roth & then withdraw the principal amount can be tricky..regardless, max out 401k
      Jul 13, 2018
  • Microsoft jfjeiwv76
    Max it out, it's free money... EVEN IF you withdraw with the penalty (which you shouldn't have to do if you roll over your IRA), it is definitely worth it.
    Jul 11, 2018 3
    • Microsoft Windw
      You sure? I’m on the same boat
      Jul 12, 2018
    • Microsoft Adrashya
      Yes I did the calculations once. After penalty it's still 10% benefit.
      Jul 12, 2018
    • Starbucks Mougli
      IRA is same as 401k except its not employer sponsored & NO, you cannot withdraw without paying the penalty & taxes
      Jul 13, 2018
  • LinkedIn Ok rcbu
    Roth is post tax. Also Roth vs regular 401k is a question of whether you expect your tax rate to he higher or lower when you retire.
    Jul 11, 2018 3
    • Microsoft qwertyasd
      OP
      "With a Roth 401(k), you pay taxes up front. In other words, you contribute to your retirement account with money from your paycheck after it has already been taxed".

      Wont the tax rate grow with the TC which will raise with age/retirement? So I dont get why people would still choose the traditional 401k in which the taxes will be imposed at the time of withdrawal and not right now.
      Jul 11, 2018
    • Amazon Flynn
      When you retire, you’ll need to withdraw less income, since you don’t have to save for retirement. You’ll only withdraw what you want to spend, so you’ll realize less of the income.
      Jul 11, 2018
    • Amazon Flynn
      But I also have a Roth IRA, so there’ll be some strategizing about how much to take from each on a given year to minimize my tax liability.
      Jul 11, 2018
  • SAP / Eng learn4ever
    Max out, I was in the same situation, I wasted 3 years. Think of next 5 years and make the investment, you can worry about what will happen after, later
    Jul 21, 2018 0
  • Microsoft / Eng tattle
    I will be moving back to India in a couple years, have started planning for it already. Even if u decide to withdraw all the money right before u leave, you should be able to get a little more than what you invested after penalties and taxes, provided u invested well. Otherwise convert it to Roth IRA and set it aside for retirement. I do recommend u to invest in 401 because it helps u set aside money and not spend it all.
    Jul 12, 2018 0
  • Yelp zpvF22
    Once you roll over to ira, are there no penalties on withdrawal ? So you have to just pay regular income tax on withdrawal ?
    Jul 11, 2018 0