IRA for H1B holders ?

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mobi999
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IRA for H1B holders ?

Post by mobi999 »

Hi ,

I am new to this forum and I feel very lucky to come across bogleheads. I have been reading this forum for last three weeks. Let me introduce myself. I arrived in US two months ago for a consulting firm in teleco sector. I have worked in several countries and have traveled extensively: asia,africa and europe. I am loving USA and its people, though my countrymen do not think like me, but this is because I have quite good world exposure. I started slightly late in career as I went to europe for Masters and than traveled for some time so I am 31 with a 100 K USD property back in my home country which is not really an investment as its my home where my parents will be shifting soon. My current compensation is around 100 K in USA although other firms are offering me 120 K but it will be too early to switch. After working towards my primary home I am now thinking of saving towards (retiremet)investments as I am single atleast this year :)
The background I come from(PK) people either invest only in real state, Gold or save moeny in cash. There is not much awareness about investments, stocks, mutual funds etc...I am very satisfied that I come across this platform where I can seek (honest)guidance. Before coming here I did met some brokers in a middle eastern country and they introduced me to some Metlife Alico products bundling investment with insurance. However I did not enroll as I was not very much satisfied with product( I will share details) and also I read on number of forums to keep investments and insurance strictly separate. I started reading about 401K, ROTH IRA etc.

So my questions will be from where to start investing?(in a month more I will be meeting my six month expense saving target and emergency fund); My home markets or US markets? Can H1B guys start 401k and Roth IRA? If I start ROTH here what if I leave after........can leave my money in USA...or if I withdraw...? If I havent come across this forum I am sure I would have opened merril edge account on my my BOFA and purchased some shares or well mutual funds in a taxable account. But this forum and bogleheads ideas have given me some strong hints that investment is much more methodological. Your guidance towards a novice to savings/investing and a newbie in USA will be appreciated? where to start from, should I ask my company about 401k etc ? iHave no idea abut filing taxes in US will investing make tax filing process cumbersome?......
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LadyGeek
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Re: IRA for H1B holders ?

Post by LadyGeek »

Welcome! I do not have the experience to answer your question directly, but the best place to learn about taxes are from the Internal Revenue Service - the US government agency responsible for taxes.

Answers to your taxation questions can be found in Publication 519 (2012), U.S. Tax Guide for Aliens. "Table A. Where To Find What You Need To Know About U.S. Taxes" will guide you through the publication contents ( Introduction).

This will not answer all of your questions (I don't think it discusses 401k plan or IRAs), but it is a good place to start. If you don't understand a concept in the publication, please ask.
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Re: IRA for H1B holders ?

Post by TheOscarGuy »

mobi999 wrote:Hi ,
So my questions will be from where to start investing?(in a month more I will be meeting my six month expense saving target and emergency fund); My home markets or US markets? Can H1B guys start 401k and Roth IRA? If I start ROTH here what if I leave after........can leave my money in USA...or if I withdraw...? If I havent come across this forum I am sure I would have opened merril edge account on my my BOFA and purchased some shares or well mutual funds in a taxable account. But this forum and bogleheads ideas have given me some strong hints that investment is much more methodological. Your guidance towards a novice to savings/investing and a newbie in USA will be appreciated? where to start from, should I ask my company about 401k etc ? iHave no idea abut filing taxes in US will investing make tax filing process cumbersome?......
You can open retirement accounts while on H1B. However, you should be asking yourself whether you plan to stay in this country, or only a few years. Foreign persons (should you choose to go back to home country after working here for a while, for the IRS you will be a "foreign person", should you choose to continue staying here, say on green card or even H1B visa, you will be "US person") are subject to 30% flat NRA withholding when payments are made to that person, by the withholding agent (401K administrator, I think). That is the withholding rate you will be subject to if you decide to keep the 401K money here in the US, leave the US, and "claim" it when you eventually retire. I have not researched this topic a lot, but you can read more in this IRS publication:

http://www.irs.gov/pub/irs-pdf/p515.pdf

I have known a few people who, after working here for a while, decided to go back. All of them took the 401K money with them (after paying taxes, and huge penalties). Not sure if they would have chosen to invest in 401K, had they known they were going to go back to their home country, eventually.

Investing in your home country is possible, and I imagine there are low cost index fund products in those markets too. I personally have not invested anywhere but US. You will have to declare all of your (US and foreign) investments while preparing US taxes next year. I am not sure about your home country's tax system, I imagine since you have investments there, you will probably be required to pay taxes there too.
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BL
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Re: IRA for H1B holders ?

Post by BL »

Almost everyone pays income tax plus a 10% penalty if they cash in their tax-sheltered 401Ks, etc., before age 59 1/2. So if you cash in and leave the country, you would have this problem for sure, and possibly other costs.

Here is a previous discussion which may have some useful information: (or not!)
http://www.bogleheads.org/forum/viewtopic.php?t=38713

I agree that checking IRS publications would give you something to go by.
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englishgirl
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Re: IRA for H1B holders ?

Post by englishgirl »

The answer to your original question is yes, you can open an IRA and 401k as an H1B holder. The question is: should you?

Investing will not make filing your taxes in the US more cumbersome. It's just another question or two for Turbotax or TaxAct or whatever to ask you about. The issue is if you leave the US, things could get significantly more complicated. I have a difficult time with my 401k-type accounts that I left in the UK. I can't withdraw the money until I am retirement age because of the UK tax provisions, I can't move the money to the US because it doesn't qualify for a transfer in to a US IRA or other retirement account, and I can't even open a new account just to move it to a lower cost provider because due to the Patriot Act (or whichever act it was), opening accounts for US persons is significantly more complicated for overseas banks and investment companies and most of them just won't do it any more. So I am stuck in limbo, constantly confused about which forms I need to file with the US to declare my foreign account.

Would that happen the other way around? I have no idea. Would PK make life difficult for you if you left an IRA hanging around in the US?? That's probably a question for a different forum than this one.

In my case, I am glad I started my IRA and 401k under my H1B. I figured that there was a very good chance that I would stay, but I also thought that in the early years when the accounts were small I could always withdraw the money and pay whatever tax penalty if I decided to go back home. I hoped that even though it'd be a high penalty based on the size of the account, it wouldn't be huge in dollar terms as the account would be small. As it is, I did decide to stay, so now I have a good few years of investments behind me.
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kd2008
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Re: IRA for H1B holders ?

Post by kd2008 »

First question to answer is how do you file your taxes?

Do you file as a nonresident alien? as in form 1040NR? If so, opening an IRA will be cumbersome.

If not and you file your taxes as a US resident (as in form 1040) and pass the substantial presence test etc, then opening an IRA is easy.

Of course, there are other considerations too. How do taxes of the country that you are citizen of work? What is the US tax treaty between your country of citizenship and the US? How long is your stay in the US going to be etc...
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Re: IRA for H1B holders ?

Post by TedSwippet »

englishgirl wrote:... In my case, I am glad I started my IRA and 401k under my H1B.
I will provide the counterpoint. I left a 401k in the US after working there for 11 years and then moving back to my home country, and wish now that I had not saved in an IRA or 401k. When balances are small the effect of changes on your future is also small, but as they grow you have to become concerned with their effects. Ultimately, a large IRA or 401k can own you, rather than the other way around.

It is increasingly difficult to hold an IRA or 401k as a non-resident alien. If you have a great company match then that would offset the tax penalty on early closure. If you have a poor company match though, it is quite likely that you will face a larger tax bill on early withdrawal than if you had not saved in the first place. Remember that not only does the federal government apply an early withdrawal penalty, but your state may also. A tax rate well in excess of 50% is quite possible.

If you move out of the US and leave an IRA or 401k you also have to factor in your home country's treatment of foreign ("offshore") retirement and savings. Some are better than others. For example, the UK treats 401k and IRA accounts as not taxable until withdrawal. Other countries are not so accommodating. You have to read any tax treaty between your country and the US carefully. You also have to factor in whatever boneheaded ideas congress comes up with between now and when you retire (of course this also applies to US citizens, but at least they get a vote, and that tends to give politicians slight pause -- as a non-resident alien you are a sitting target for any spendthrift politician). HEART (2008) and FATCA (2010) are both tax treaty overrides that negate some of the benefits in treaties the US already signed with other countries, and you can expect more of the same between now and when you retire and draw on your IRA or 401k.

So... it depends. If you will stay in the US forever, go all in and use IRAs and 401ks to the full. If you will leave the US before retiring, think very carefully indeed before committing to either. And if you don't know whether or not you will stay, buy a functional crystal ball.
Last edited by TedSwippet on Mon Jul 08, 2013 12:53 pm, edited 1 time in total.
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englishgirl
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Re: IRA for H1B holders ?

Post by englishgirl »

kd2008 wrote:First question to answer is how do you file your taxes?

Do you file as a nonresident alien? as in form 1040NR? If so, opening an IRA will be cumbersome.

If not and you file your taxes as a US resident (as in form 1040) and pass the substantial presence test etc, then opening an IRA is easy.

Of course, there are other considerations too. How do taxes of the country that you are citizen of work? What is the US tax treaty between your country of citizenship and the US? How long is your stay in the US going to be etc...
He should be filing as a US resident.

Being a US resident as far as the IRS is concerned is not the same as being a US resident as far as the USCIS is concerned.
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englishgirl
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Re: IRA for H1B holders ?

Post by englishgirl »

TedSwippet wrote:
englishgirl wrote:... In my case, I am glad I started my IRA and 401k under my H1B.
I will provide the counterpoint. I left a 401k in the US after working there for 11 years and then moving back to my home country, and wish now that I had not saved in an IRA or 401k. When balances are small the effect of changes on your future is also small, but as they grow you have to become concerned with their effects. Ultimately, a large IRA or 401k can own you, rather than the other way around.

It is increasingly difficult to hold an IRA or 401k as a non-resident alien. If you have a great company match then that would offset the tax penalty on early closure. If you have a poor company match though, it is quite likely that you will face a larger tax bill on early withdrawal than if you had not saved in the first place. Remember that not only does the federal government apply an early withdrawal penalty, but your state may also. A tax rate well in excess of 50% is quite possible.

If you move out of the US and leave an IRA or 401k you also have to factor in your home country's treatment of foreign ("offshore") retirement and savings. Some are better than others. For example, the UK treats 401k and IRA accounts as not taxable until withdrawal. Other countries are not so accommodating. You have to read any tax treaty between your country and the US carefully. You also have to factor in whatever boneheaded ideas congress comes up with between now and when you retire (this of course also applies to US citizens also, but at least they get a vote, and that tends to give politicians slight pause -- as a non-resident alien you are a sitting target for any spendthrift politician). HEART (2008) and FATCA (2010) are both tax treaty overrides that negate some of the benefits in treaties the US already signed with other countries, and you can expect more of the same between now and when you retire and draw on your IRA or 401k.

So... it depends. If you will stay in the US forever, go all in and use IRAs and 401ks to the full. If you will leave the US before retiring, think very carefully indeed before committing to either. And if you don't know whether or not you will stay, buy a functional crystal ball.
True, for every person that does not regret starting a 401k in this situation there's a person (or more than one) that DOES regret it. Although...you must have been thinking about going back well in advance of the date that you actually left. It's not a decision that would be taken lightly. I would think if you stop contributing from the time you start seriously considering going home again, that might go some way to lessening the effects.

Also, I didn't think about this before, but with a Roth IRA, you can withdraw the contributions at any time with no penalty or tax. So perhaps this is a situation where a Roth IRA makes sense, even if OP would otherwise qualify for a Traditional IRA (which he doesn't, judging by his earnings). If he decides to go home, he can withdraw his contributions, and either leave the earnings to rot in the account, or pay the tax penalty on withdrawal of the earnings only. So, 401k only to the extent that he gets a match, to lessen THAT tax/penalty hit, and then Roth IRA? And then if there's more to save after that, taxable accounts only?
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Re: IRA for H1B holders ?

Post by TedSwippet »

englishgirl wrote:...True, for every person that does not regret starting a 401k in this situation there's a person (or more than one) that DOES regret it. Although...you must have been thinking about going back well in advance of the date that you actually left. It's not a decision that would be taken lightly. I would think if you stop contributing from the time you start seriously considering going home again, that might go some way to lessening the effects. ...
The wild card here is any act of congress that massively changes the equation without warning. Up to 2008 one could leave the US at any point and rely on the US/UK tax treaty to ensure that IRA or 401k withdrawals are taxed only by your "state of residence". In 2008 congress passed HEART. It contains provisions that for some can a) tax the entire IRA or 401k balance as if distributed on the day before departing, or b) apply 30% withholding on withdrawal in contravention of (and requiring you to sign a waiver for) tax treaty benefits. So congress can destroy even the best long-term planning in an instant.

I left the US before HEART passed into law. Had I waited until after I would have faced more than $100k in unrecoverable double tax on my retirement savings when I did eventually leave. I had always intended to stay in the US for a long time but not forever (aging parents). Unfortunately HEART forced me to move out some years earlier than intended. This is an example of an IRA or 401k owning you, rather than the other way around. Well, that, and also an example of why no long-term retirement plan should rely on current rules or on congress living up to tax treaty obligations.

As you say, a Roth might be a viable workround for this. A way to keep everything quickly liquidateable if (when) congress passes a law you cannot live with. In 2008 Roth conversions were much more restricted than now, and not an option for me. Congress might restrict them again in future.
dimdum
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Re: IRA for H1B holders ?

Post by dimdum »

Depends upon your time horizon and amount investing. If its 401k with employee match and you plan to stay for 2-3 yrs, then its worth it.
With employee match, you can looking around 60K or so in about 3 years. Being in six figure salary with single tax filer, it will help in immediate tax rebates.

If you decided to take money back and do withdrawal over couple of years, you'll pay 10% penalty but since you won't be earning any US salary, you tax liability will be very low on the withdrawal.
Perpetual
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Re: IRA for H1B holders ?

Post by Perpetual »

TheOscarGuy wrote:
mobi999 wrote:Hi ,
So my questions will be from where to start investing?(in a month more I will be meeting my six month expense saving target and emergency fund); My home markets or US markets? Can H1B guys start 401k and Roth IRA? If I start ROTH here what if I leave after........can leave my money in USA...or if I withdraw...? If I havent come across this forum I am sure I would have opened merril edge account on my my BOFA and purchased some shares or well mutual funds in a taxable account. But this forum and bogleheads ideas have given me some strong hints that investment is much more methodological. Your guidance towards a novice to savings/investing and a newbie in USA will be appreciated? where to start from, should I ask my company about 401k etc ? iHave no idea abut filing taxes in US will investing make tax filing process cumbersome?......
You can open retirement accounts while on H1B. However, you should be asking yourself whether you plan to stay in this country, or only a few years. Foreign persons (should you choose to go back to home country after working here for a while, for the IRS you will be a "foreign person", should you choose to continue staying here, say on green card or even H1B visa, you will be "US person") are subject to 30% flat NRA withholding when payments are made to that person, by the withholding agent (401K administrator, I think). That is the withholding rate you will be subject to if you decide to keep the 401K money here in the US, leave the US, and "claim" it when you eventually retire. I have not researched this topic a lot, but you can read more in this IRS publication:

http://www.irs.gov/pub/irs-pdf/p515.pdf
This is not necessarily true. If your home country has a tax treaty with the US, then your US-based retirement accounts can benefit from the same tax-sheltered status that American citizens enjoy. You just need to file some forms with your retirement account provider (in my case it was Fidelity) and provide proof of citizenship in that country.

http://www.irs.gov/Individuals/Internat ... y-Benefits
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Re: IRA for H1B holders ?

Post by TedSwippet »

Perpetual wrote:... If your home country has a tax treaty with the US, then your US-based retirement accounts can benefit from the same tax-sheltered status that American citizens enjoy.
This relies on congress allowing you to use the tax treaty. They may not. Form W-8CE, Notice of Expatriation and Waiver of Treaty Benefits exists precisely to strip some departing citizens and long term permanent residents of tax treaty rights. The alternative is immediate payment of full US income tax on the balance in retirement accounts.
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mobi999
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Re: IRA for H1B holders ?

Post by mobi999 »

So the conclusion I am reaching here is that I have to do my saving in taxable account. 401 K and IRA are too vague for an H1B worker which is understandable as an H1B worker at first place is a temporary workforce. I will be opening a vangaurd account and will be going through the index funds which suite my profile and risk appetite.
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Re: IRA for H1B holders ?

Post by rr2 »

mobi999 wrote:So the conclusion I am reaching here is that I have to do my saving in taxable account. 401 K and IRA are too vague for an H1B worker which is understandable as an H1B worker at first place is a temporary workforce. I will be opening a vangaurd account and will be going through the index funds which suite my profile and risk appetite.
True, except under two conditions that englishgirl listed above

401k upto match
Roth IRA where contributions can be withdrawn
netizen
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Re: IRA for H1B holders ?

Post by netizen »

mobi999 wrote:So the conclusion I am reaching here is that I have to do my saving in taxable account. 401 K and IRA are too vague for an H1B worker which is understandable as an H1B worker at first place is a temporary workforce. I will be opening a vangaurd account and will be going through the index funds which suite my profile and risk appetite.

Well I am not sure I would make that conclusion. There can be many ways around the whole thing.

1. You can always roth convert your 401K on leaving , which would imply you pay taxes but not penalty and be able to withdraw the contributions 5 years down the line and your gains at age 59.5 regardless of your residence country without penalty or taxes

2. You can also time your "return" in such a way that your tax bracket can be low for that year and if you satisfy residency condition, you would still file tax accordingly. This might be perfect time to Roth convert

3. You can also decide to stay to get a GC and then move back to your country. Depending on your home country, you can get GC within a year or in a decade..

4. If plan changes and you end up in US for a long long time and permanantly, you can still enjoy your retirement plans and savings.

5. You can have kids in US while on H1B who will be US resident by birth and they may want to come back to US for education , in that case 529 may make sense.

6. You can also avail 10K$ for your first house purchase regardless of which country that is in without any penalty and pay ordinary income tax. If you are married and your wife also has IRA, then you can avail 20K $. The IRS says the first-time homebuyer using your IRA funds for a down payment can be you, your spouse, one of your children, a grandchild or a parent. Also, first home is not truly first home. Its your first home or primary residence in 2 year period. So you can buy house in US using IRA money and buy another home in your home country on your move and still withdraw money from IRA without penalty.


You cannot plan for everything.. Just do your due diligence and make a step. If plan changes, as an afterthought you will always regret in some way..But there is only so much you can do.
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Re: IRA for H1B holders ?

Post by TedSwippet »

netizen wrote:So the conclusion I am reaching here is that I have to do my saving in taxable account.
mobi999 wrote:Well I am not sure I would make that conclusion. There can be many ways around the whole thing. ...
Beware of simplistic answers to complex issues.

On 1, unlimited Roth conversion is a recent thing. In 2008 I would have converted to Roth before leaving the US if I could have, but was over the (then) earnings cap. Today it seems that is less of a problem, but congress could always change the rules (back) in future and perhaps close off this option. Better to start with a Roth than rely on later conversion.

Both 1 and 2 depend on your country of residence recognising Roths as tax-free. Some do, but many do not.

On 3, you lose a green card two years after leaving the US, so that won't work. To permanently avoid exit taxes and other punitive measures congress uses for folk who leave the US you have to become a full US citizen. That brings a bunch of other hassles with it if you won't be living in the US. The tax angles are dreadful. Many US citizens living abroad are now having real trouble getting accounts in their country of residence. Renunciation is at an all time high. Complete inability to function financially in the country you live in is a high price to pay just to retain a US 401k or IRA.

And on 6, beware of both FIRPTA and US estate taxes for non-resident aliens. Together these push tax on US real estate to much higher levels for non-resident aliens than US citizens would face in the same circumstances. Ways round them include holding US real estate through a trust, but that has its own set of problems.
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Re: IRA for H1B holders ?

Post by TheOscarGuy »

netizen wrote: 3. You can also decide to stay to get a GC and then move back to your country. Depending on your home country, you can get GC within a year or in a decade..
And if you do leave the country for more than 6 months in a year, you will lose the Green Card. So you are not really gaining anything here, if you are eventually moving back after getting the GC, w.r.t. the issue at hand.
newboggler
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Re: IRA for H1B holders ?

Post by newboggler »

I am on H1b and I have Bank Of America IRA - money market
hope this help
Caduceus
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Re: IRA for H1B holders ?

Post by Caduceus »

This question seems to come up on Bogleheads very often. Perhaps we could come up with some sort of Wiki on this over time as a rough guide? Where would people start looking for answers to questions like these? Just an idea.
Last edited by Caduceus on Sat Aug 24, 2013 10:59 pm, edited 1 time in total.
netizen
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Re: IRA for H1B holders ?

Post by netizen »

TheOscarGuy wrote:
netizen wrote: 3. You can also decide to stay to get a GC and then move back to your country. Depending on your home country, you can get GC within a year or in a decade..
And if you do leave the country for more than 6 months in a year, you will lose the Green Card. So you are not really gaining anything here, if you are eventually moving back after getting the GC, w.r.t. the issue at hand.

Sure, but like any other law, there are ways around it .. something called "re-entry permit" which makes your GC valid for 2 years outside US. There are some things that must satisfy this condition which you can look up.
netizen
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Re: IRA for H1B holders ?

Post by netizen »

Caduceus wrote:Thanks everyone for the interesting discussion. Just out of curiosity, under current U.S. tax law, assuming the home country of the NRA does not tax foreign-source income, are there any disadvantages at all to leaving 401k/IRA balances as they are in the U.S. until retirement age? I understand that many things may change between now and the future, but as far as current law is concerned, are there material differences in taxation in a case like this?

This question seems to come up on Bogleheads very often, which represents how persuasive Mr. Bogle's ideas have been to so many, regardless of their nationality. Perhaps we could come up with some sort of Wiki on this over time as a rough guide? Where would people start looking for answers to questions like these? Just an idea.
Under current law, it you are not a US resident, you are NRA and if you leave your 401K as is, there is no problem but when you take out at retirement age, you will be taxed flat at 30%. Many people who retire and tap their 401K at much lower tax rates. For you, if your current Tax bracket is lower than 30% therefore it may not make sense to invest pretax.

It may be best to invest in "Roth 401K" most companies are offering it. This way all will be saved post taxed, you will still get company's match and then you can leave it as is till your retirement age in NRA status..
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Re: IRA for H1B holders ?

Post by grabiner »

netizen wrote:Under current law, it you are not a US resident, you are NRA and if you leave your 401K as is, there is no problem but when you take out at retirement age, you will be taxed flat at 30%. Many people who retire and tap their 401K at much lower tax rates. For you, if your current Tax bracket is lower than 30% therefore it may not make sense to invest pretax.
What matters is the comparison between your current tax rate and the tax rate at retirement. If you are currently in a 25% federal and 5% state tax bracket, and you retire in a 30% federal and no state tax bracket (in your home country), the 401(k) was just as good as a tax-free investment, although it would be even better for a US retiree who retires in a 15% federal and 5% state bracket.
It may be best to invest in "Roth 401K" most companies are offering it. This way all will be saved post taxed, you will still get company's match and then you can leave it as is till your retirement age in NRA status..
But check how your home country handles this. If your home country will tax all the gains from a Roth IRA or Roth 401(k) upon withdrawal if you return there, you will have a large tax cost for a Roth account.
Wiki David Grabiner
rr2
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Re: IRA for H1B holders ?

Post by rr2 »

netizen wrote:
Caduceus wrote:Thanks everyone for the interesting discussion. Just out of curiosity, under current U.S. tax law, assuming the home country of the NRA does not tax foreign-source income, are there any disadvantages at all to leaving 401k/IRA balances as they are in the U.S. until retirement age? I understand that many things may change between now and the future, but as far as current law is concerned, are there material differences in taxation in a case like this?

This question seems to come up on Bogleheads very often, which represents how persuasive Mr. Bogle's ideas have been to so many, regardless of their nationality. Perhaps we could come up with some sort of Wiki on this over time as a rough guide? Where would people start looking for answers to questions like these? Just an idea.
Under current law, it you are not a US resident, you are NRA and if you leave your 401K as is, there is no problem but when you take out at retirement age, you will be taxed flat at 30%. Many people who retire and tap their 401K at much lower tax rates. For you, if your current Tax bracket is lower than 30% therefore it may not make sense to invest pretax.
I could be wrong, but I thought it was just a 30% withholding and that you would need to file US tax return to get a refund.
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Re: IRA for H1B holders ?

Post by TedSwippet »

Caduceus wrote:... under current U.S. tax law, assuming the home country of the NRA does not tax foreign-source income, are there any disadvantages at all to leaving 401k/IRA balances as they are in the U.S. until retirement age?
It depends on the country.

If there is a tax treaty with the US, then this often defines what happens. The only one I know well enough, US/UK, says that neither country taxes 401k/IRAs until withdrawal, and only the country you live in taxes withdrawals. Treaties are not uniform, though. Canada's, for example, says something completely different about retirement account withdrawals. And some treaties may not cover retirement accounts at all.

If no tax treaty, or if it says nothing about retirement accounts, then something like this occurs at the US end. A disadvantage because a chunk of withdrawal is taxed at a flat 30%, rather than (likely lower, though not guaranteed) graduated US rate.

Another possible disadvantage is US estate taxes. The US has some unpleasant rules for non-residents aliens who die holding US assets. No unlimited marital exemption and only $60k exclusion; compare to unlimited marital exemption and $5MM exclusion for US citizens. Few countries have estate tax treaties with the US.

Finally you may not be able to leave the accounts 'as they are' at all. If you are a particular type of long term permanent resident the US 'exit tax' immediately taxes your full 401k/IRA balances on departure. This is doubly disadvantageous. Firstly, you have to either find the cash for the 'exit tax' from other sources or withdraw early from the plan and face even higher taxes and early withdrawal penalties. And secondly, when you withdraw from these accounts for real in retirement your home country is unlikely to allow credit for the US 'exit tax' paid perhaps decades earlier, meaning that your 401k/IRA is double-taxed.
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mobi999
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Re: IRA for H1B holders ?

Post by mobi999 »

netizen thnx for simplified answer. Well was not aware tht there are a whole lot of other aspects I can plan about with H1B.

However for 401K I am seeing lots of ifs and buts. I have no retirment plan neither in my country nor in US and since I do project oriented job I think its very important for ppl like me. I will still look for more answer for 401K and talk with colleagues. I just got a letter from T row price and from My firm what investment options they have. However I haven't talked directly with HR what their policies are ...matching etc. Also what other H1-B guys are doing in the firm??/
shreyasfifa
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Re: IRA for H1B holders ?

Post by shreyasfifa »

I'm on H1B and if I go back to my home country in the next few years and not withdraw the 401K until I'm 59.5 years. Would that be a beneficial move?
I understand that I have to pay 30% tax. Is it 30% on the total amount you withdraw or only the earnings?

Thanks!
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grabiner
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Re: IRA for H1B holders ?

Post by grabiner »

shreyasfifa wrote: Tue Oct 17, 2017 12:48 pm I'm on H1B and if I go back to my home country in the next few years and not withdraw the 401K until I'm 59.5 years. Would that be a beneficial move?
I understand that I have to pay 30% tax. Is it 30% on the total amount you withdraw or only the earnings?
Since none of the money has previously been taxed, any tax is due on the entire withdrawal, whether you are a resident or a nonresident. (However, a tax treaty may determine whether this is taxed at 30%, at a lower rate, or only by your home country.)

You'll also have to see how your home country taxes the 401(k); if it doesn't recognize US retirement plans, it might tax you on the gains even while the money stays in the plan.
Wiki David Grabiner
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