Hi. I started out as a masters student, got hired by Apple and now I am on H1B. If you haven't guessed it yet, I am an Indian. I have always wondered whether 401k is the right strategy for me in order to invest my money given all the uncertainties around Green card for Indians. Very likely, I will have to leave this country, which is when I will need all the cash I can get. If I invest in 401k, my company will match it 50%, which is basically free money. However, I am pretty sure that I will have to take out my 401k earnings way before my retirement since when I go back to India, I wouldn't want any part of my money to stay in the US. Given that IRS will deduct a penalty on 401k and the fact that I have to pay taxes on them anyway, does it make sense for me to go for it or should I rather think of investing my money in other avenues? I have tried looking for the right answer on the internet, but all I have seen is mixed opinions from people. So, I'd love to hear some hard facts from y'all. (PS : Please don't make this a forum for discussing/ranting about US immigration. I have pretty much given up on thinking about it. Fair or not, I have accepted my fate).
Go for 401k , if you have to go back, you can remove money from 401k for 10% penalty, since your tax bracket wil be low, eventually it will be lower tax for you, goto a qualified CPA give 150$ for a sitting and get 100% confident answer instead of guessing
Well having to go back doesn’t necessarily mean you have less income right? An example would be starting a business.
If you contribute, get 50% match, and then withdraw, you still come out ahead. Say you contribute 18500 to Roth 401k and get 9250 match in pre-tax 401k. When you withdraw, you get hit with a 10% penalty. For pre-tax, you also have to pay taxes. Let's say the total taxes (fed+state) is 35%. Then you have 18500+9250-18500*.1-9250*.45=21737.5, which is more than you started with.
^this. Precisely the calculation I went with and ended up investing in 401k
Thanks. Your example does make things a little clearer. However, what if I invest that same money in something else, like a property at some place in India with booming industry? Wouldn't that give me more returns?
I would definitely opt for 401k . There is something called ROTH With a Roth 401(k), You make your contributions with after-tax dollars, so there’s no upfront tax deduction. And unlike a Roth IRA, there are no contribution limits based on your income. You can withdraw contributions and earnings tax-free at age 59½. It doesn’t matter if you are in America when you turn 591/2 or not you can still withdraw money from it.
You should still max out 401K match! 401K early withdrawal penalty is only 10% but you get 50% free money. Do the math, you will still get a lot more money back by funneling money through 401K.
You can take out the money in parts each year, so you wont need to pay high taxes that you'd need to pay today if you dont opt for 401k. You'd end up paying fine for early withdrawals, but that should be much smaller as compared to the tax bracket you're in today. Add up the 50% free money from your employer, and its no brainer to go for 401k. Talk to your CPA, they will put numbers on excel sheet and give you actual numbers for losses/benefits.
401K is funded with pre-tax money. Plus you got a company match. You should max it. Over time if invested right it does add up. In unlikely event that you leave USA that is still your money. If you want to take it out you can optimize your widrawal and since you are not going to have US income, even with penalty that will be taxed less than your original investment.
I am on the same boat but been maxing out my 401k for the last few years and is now my biggest investment asset. I get to take the company match which is 7.5% in Capital One plus allows me to save 20-25% in taxes. If I have to move my money back to India I can always do it in smaller chunks or leave it here so that it grows till I turn 60.
Do you know if you can take the money in small chunks even though you earn money in India when you move back? And by small chunks how much $$ do you mean?
Your money grows tax free. Don't underestimate the power or compound interest. Max it out and pay the 10 percent penalty in the end if you need to prematurely withdraw.
I am in the same boat. I am leaving to India next year and based on the research I did, I am planning to rollover to Roth IRA and withdraw after 5 years to avoid penalty but still owe taxes. If I rollover in smaller amounts instead of one shot I will owe much lower taxes anyways.
Given that I haven't started investing in 401k, does it make more sense for me to start out with Roth IRA?
If you are eligible for Roth IRA, I recommend putting 5.5K there first before putting in 401K if you want to invest for retirement as you pay no tax when you withdraw on what you put plus whatever grown.
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Same situation. I also need this info.