Peeps on H1b: Do you contribute part of your earnings towards 401k? If so, what percent?
In the beginning of my career I was with consulting firms which didn’t have 401k and later they had but didn’t contribute ( I should have contributed then but was naive ) ... ever since moved to FTE I’ve been maxing my 401k contribution... this year I plan to contribute more depending on the market
Max out and do catch up if u are still here after 50+
Maximize.
Here are my thoughts: 401k contribution limit is at $19500 per year. Assuming you max out your contribution every year and your employer matches the typical 50%, you’re paying $13,000 from your pocket + $6,500 matched by employer. Consider a 20 year time period. Your 401k savings are now $390,000. You pull that out and pay the normal taxes ~30% (say). You get in hand $273,000 Now consider someone who does not contribute to 401k at all, rather Invests the $13,000. Assuming an average 5% annual growth, This compounds to $396,500 in 20 year period Put in the same 30% tax and you get $277,500, which is greater than what you get if you put it in 401k Simple math. 401k IS A SCAM! (and this calculations did not even consider the early withdrawal 10% penalty)
The idea behind 401k is that your tax rate will be lower after retirement when your income is lower, so your example is flawed. Imagine paying 10-15% effective tax on your 401k wealth after you retire. Also you’re not going to keep your 401k assets in cash. You’ll invest it and not pay tax on any reinvested dividends until retirement. This is also huge.
You missed out two important parts. 1. The 401k money should compound too. Assume a 4% rate, contributing 19k will compound to $580,670 in 20 years. 2. The initial 19.5k was pretax each year. The 13k was post tax.
So for H1B holder, 401K is only advisable if your employer also matches your contribution. This will help in negating the penalty when you withdraw it before retirement like moving back to native country. Second thing to consider is that when you withdraw the fund, your overall US income might be less that year (within 2 years moving to India), so you will end up paying taxes on lower tax brackets.
Even if you are an h1b holder, there is no need to withdraw your money before retirement. It’s better to let it stay in the US and provide further diversification of your assets through exposure to the US market until you can withdraw penalty free after retirement
Although there will be no penalty in US, you will end up paying complete taxes on that in India, as any money brought after 2 year duration of moving back is taxable. Agree in assets diversification part. Bottom line is : these decisions will be made in future based on various scenarios, but should only invest if employer matches the contribution else end up paying more in taxes
Been maximizing it every year. Saves on taxes and money for retirement
What happens if you gotta leave the country? You get taxed plus an extra 10% for early withdrawal right?
^ even with 10%, if company contribution is more than 10%, you profit 🤑