Investing in 401 k for h1b visa holders ?
Is it worth it ? Or should they look for other investment options ?
Just go for 401k even if you are not sure about your stay here .. it s worth..need to plan well so that you could save the tax money even if you have to leave th country for some reason..
Totally worth it if there’s a company match which is vested immediately
Obviously it depends, but if your company provides matching it improves the case for 401k. Think about the different scenarios. If you stay here till retirement age, you will earn the benefits of of tax deferral and growth. In the worst case lets say you have to go back. If you wait for next tax year in US, you tax bracket will be much lower in US earnings and you could withdraw the amount
If you can invest and get better returns from an alternate source then it's not worth investing in 401k including the tax benefits plus company match. If you don't have any other investment options then just keep saving in 401k hoping it's good enough. If you save every paycheck you eventually save maybe a million let's say. Right now 1 million is good amount of money and hard to earn but would that be the same case after 50 years ? How hard would it be to earn 1 million then. If you took the same amount and paid for a loan to own a property or investment in something you will have better control on the returns. This is my perspective.
Don’t invest in 401k for the full federal allowed limit. Only invest as much for which you can get the full contribution match amount from the employer. E.g. if your employer’s maximum match is $4000 for $10000 of your money then don’t invest more than $10000 in 401k even though the federal limit is $19000. Find higher yielding investments elsewhere for that remaining $9000 (e.g Indian FDs?). If you want other options for your money in US then read on. If your company has a Roth 401k then put remaining $9000 in Roth 401k. If not and if you don’t make more than allowed income limit for Roth IRA (google it) then put $5500 in Roth IRA. Otherwise put that $5500 in Traditional IRA (after tax) and then roll it over to Roth IRA (backdoor roth). Any money in Roth account is fully tax free in Retirment. Any amount you draw from Roth is not considered “provisional” income like 401k during retirement. If you go over a certain income limit during retirement and if that income is considered provisional then about half the Social Security is taxable at worse case scenario 85%. Tax deferring is not a good option ever because in future if taxes go up 401k will be taxed at insane rates plus Social Security gets taxed at insane rates which means you draw more from 401k to suffice same lifestyle in retirement and exhaust it way earlier than you had planned for. PS - I am pursuing CFP license.
You should. Else you're leaving money on the table. Even considering early withdrawal penalties.
This is true only if there’s a company match.
Obviously, but there’s almost always there. Even if not, it MAY make sense.