Roth vs Pretax 401k?
I am a non american working in Washington. I might be withdrawing money before retirement, so i would be charged 10% penalty. From what i understand Roth makes more sense in my case, i would pay tax now (only federal, no state tax in WA). At the withdrawl, no matter which state i would be in, i would be charged tax only on profits made on invested and the money i initially contributed will not be charged any tax. Am i correct here? Also, the money which comapny contributed would be charged at the time of withdrawl?
Even though you are contributing to Roth 401k, employer match always goes to traditional 401k, so you will be taxed if you are withdrawing employer match. Also you need to wait at least 5 years before withdrawing your Roth 401k contributions.
Why would you be withdrawing money? There are a bunch of qualifying reasons, esp after you quit and roll into an IRA (buying a house, grad school, illness, etc.)
The actual benefit of Roth depends on what you expect your real tax rate will be in retirement, which is largely driven by where you expect to live and what your expected income will be when you start taking distributions. You should consult a financial advisor to run the numbers, but as an extremely general rule, if you expect that you will be making more money and be taxed at a higher rate in retirement then you do now,, you should go with Roth because you'll pay less taxes on the distributions now. It's common to do Roth contributions early in your career, then switch to pre tax later when you are making more money.
For 401k every penny (your or employer match) you withdraw is taxed and fined if taken out early. If you withdraw when not a US resident for the tax yr, you will pay only federal tax. Edit: reference to pretax 401k only.
Do you even know what Roth is ? Principal is already taxed, it will not be taxed again
Yes i was talking abt his pretax 401k only, have edited for clarification :)