I am planning to go back to my country about it 5-6 years. I feel like 401k wouldn't help that much and almost decided to opt-out from it since getting more cash per paycheck would be more helpful to me than waiting until I become 60 and withdrawing it. Any thoughts?
I know many people who said they are gonna go back in a few years. None of them went back. And they made the same mistake of not opening a 401k and regretted it. In 4-5 years you are going to start liking it here and it’s going to be very tough to go back. And at that point, not having a 401k kitty is going to be a significant setback. So, no harm opening a 401k right now. You can always withdraw with minimal penalties later if you indeed decide to go back.
Also, in general, as a rule of thumb, if Uncle Sam is giving you any tax break, just take it. :)
Yup, this happened to me, lost two years worth of contributions. Also, it's possible to access the money earlier, through 72(t) distribution, or via a Roth conversion ladder.
You can always go back to your home country and withdraw remotely when you turn 60 too. Contribute!
Not done it, but say you make 100k. You put 4.5% matched by your employer into 401k. You have 9k at the end of the year. Once you are no longer a us resident for tax you will probably pay around 10-12% federal tax and a 10% penalty. So you withdraw $7.2k before the tax free investment gains, but you only put in $4.5k. If you stay in the US you have a pension which might be helpful. So take the free money.
Even if you withdraw while you're working and earning a lot, it's still worth it. With 30% effective tax rate, and 10% penalty, you're still going to be getting free money (albeit not that much). Unless you really need the cash, you should definitely put money in your 401k.
Even if all you are getting is the tax break, it’s probably worth it. If there’s any matching involved, that’s icing on the cake.
401 k is no brainier 🧠 even if time horizon is 1 yr, you should go for it.
6th grade math will show you why you shouldn't opt out of free money, aka 401k
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You can withdraw it anytime before 60 by paying ten percent penalty. Many companies match your contribution to 401k. So overall you come out ahead even if you end up withdrawing early. And chances are that you won’t leave.
If my company matches 4.5%, doesn't that mean I will lose more if I try to withdraw early?
Maybe. I’ll let you do the math. Usually if companies match, they match more than 4.5%