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FXF

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« on: April 27, 2016, 08:08:10 AM »
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« Last Edit: April 30, 2018, 12:06:41 PM by FXF »

dandarc

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #1 on: April 27, 2016, 08:28:42 AM »
1.  A 401K is a retirement account provided by your employer.  You cannot put any money other than via payroll, so that money coming into the country cannot be put here.  The match means that in addition to any money you choose to have put into the 401K, your employer will put additional money in as well.  You'll want to be clear on the particulars of your employers 401K - matches vary, but are usually a very good deal for you.

2.  An IRA is an Individual Retirement Account you can open on your own.  There are income limits that you will need to consider.  The IRA contribution limit is $5.5K per person per year, so you could put up to $11K ($5.5K each for you and your spouse of your savings into an IRA at any time, provided you have earned income in that tax year to be eligible to contribute.

3.  The 401K is usually available in 2 types - Traditional or Roth.  The IRA is available with the same two options.  With a traditional account, you do not pay taxes today, but you pay taxes when you withdraw in the future.  With the Roth option, you pay taxes today, but withdrawals are tax free.  In your 401K, if your employer offers the Roth option, you usually can split your deferred salary however you wish between Traditional and Roth.  Again, become familiar with your employers plan.  IRA is similar - you can split your $5.5K limit between traditional and Roth however you wish.

The general advice when choosing between Roth and Traditional is if you expect your marginal tax rate to be higher upon withdrawal than it is when you put the money in, then you should go Roth.  If you expect your tax rate to be lower on withdrawal, go Traditional.  In an IRA, you also have to be aware of income limits - if your traditional IRA contribution would not be tax-deductible due to your income being too high, but your income is low enough that you are eligible for Roth IRA contributions, then the obvious choice is the Roth IRA.  If your income is so high that you aren't eligible for regular Roth IRA contributions, you can do a "Backdoor Roth IRA", but that is more of an advanced technique.

4.  These are just the basics - I do not know how being an expat affects eligibility currently, or what will need to happen when you leave.

rubybeth

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #2 on: April 27, 2016, 08:33:15 AM »
Will you be moving out of the US after this job ends and/or you retire? I am thinking a taxable investment account may be the best option, but I am not sure--it would give you a lot of flexibility, and you could just put everything into Vanguard funds.

There are annual limits on 401k and IRA investments, as dandarc mentioned. You could max out the 401k for the next few years ($18,000 maximum each year), and the IRA options (accounts for both you and wife), but I am not sure what kind of tax implications you'd be looking at if you'll be leaving the US.

I am hoping other expats will chime in to help!

dandarc

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #3 on: April 27, 2016, 09:43:33 AM »
So you can't rollover US retirement accounts to foreign ones, it appears to me.  So if you leave, you might leave the 401K / IRA as well, then withdrawing as needed and paying taxes in the U.S.

On the one hand, reducing income taxes at a high income usually makes sense.  And you're relocating to a high-income-tax state (California from your other thread), so all the more so.  On the other hand, having money in various accounts in multiple countries could be quite the hassle down the road.  Of course, with everything on the internet these days, might not be that big of a hassle.

rubybeth

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #4 on: April 27, 2016, 10:00:42 AM »
So you can't rollover US retirement accounts to foreign ones, it appears to me.  So if you leave, you might leave the 401K / IRA as well, then withdrawing as needed and paying taxes in the U.S.

On the one hand, reducing income taxes at a high income usually makes sense.  And you're relocating to a high-income-tax state (California from your other thread), so all the more so.  On the other hand, having money in various accounts in multiple countries could be quite the hassle down the road.  Of course, with everything on the internet these days, might not be that big of a hassle.
I am quite resigned to the fact that it is going to be a hassle either way. Should I stay in the US I have retirement accounts in Germany to deal with and vice versa.

In that case, max out everything you can. The 401k will reduce your taxable income, as will the IRA. You can open an IRA account with Vanguard. Once you leave your employer, you can roll the 401k to Vanguard, as well.

seattlecyclone

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #5 on: April 27, 2016, 11:54:13 AM »
From what I have read, the tax treatment of US retirement accounts when you retire to a different country depends very much on the individual tax treaty that the US has with that other country. Seems like a big mess to me.

Regardless of the treaties involved it probably makes a lot of sense to contribute at least enough to the 401(k) to get the maximum employer match. After that, look into what would happen if you left the US for retirement, consider how likely that is, and make a decision from there.

seattlecyclone

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #6 on: May 03, 2016, 07:20:18 AM »
A 4% match isn't bad. Going with Fidelity the funds you have access to probably won't be completely terrible, and could be quite good if they decided to put some Spartan funds in there.

rubybeth

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #7 on: May 03, 2016, 07:45:48 AM »
I really like Fidelity (my dad has been a long-time user), and second the recommendation of some Spartan funds. My IRA is with Fidelity (I really like their brokerage account--we use it as our main checking account and they reimburse all ATM fees), and recently got the bump from FUSEX to FUSVX (advantage class shares with lower fees).

zz_marcello

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #8 on: May 03, 2016, 10:38:22 AM »
Im a German expat living in the US since more than three years (E1 visa)

A traditional 401k is a wonderful option for you.
- Definitely put in the yearly max contribution of $18k + get your employer match.
- This money is pre-tax, so it reduces significantly your current federal and California taxation.
- Money in the 401k can grow tax free during the whole lifetime of this account!
- In case you go back to Germany your 401k money can still continue to grow tax free in you US account. (US-German tax agreement)
When you start to withdraw from your 401k, you pay taxes on the withdraw-ed amount in the US; which means you will have a very low tax rate!

Marcel

seattlecyclone

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #9 on: September 06, 2016, 06:28:47 PM »
I agree that you picked the five best funds in the plan. Why bother with funds with fees over 0.5% when you have better options?

If you want to mimic a US total stock market fund (such as VTSAX) with what you have, buy the large cap, mid cap, and small cap index funds in an 8:1:1 ratio. What you have now is tilted more in favor of mid/small-cap companies. This is a perfectly valid strategy that some people argue is likely to outperform a more pure market-cap-weighted fund like VTSAX, but I just want to make sure that you actually intend to tilt your allocation in that manner.

If you're concerned about the account being too US-heavy, it's totally okay to put more than 20% of the money into the international fund.

MustacheAndaHalf

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Re: 401k, Roth, IRA for a bloody expat beginner
« Reply #10 on: September 10, 2016, 11:25:35 PM »
Since you might retire to US or Europe, I'd push as high as you are comfortable with the international percentage.  I'd even suggest 40-50% range for your situation, but if that makes you nervous 30% is fine.  Investing that lets you sleep at night is better than investing that makes you panic.

You might see if you can talk to an attorney in international law and tax law - maybe from your employer.  They couldn't arrange your transfer without some help, so they might be able to provide help to an employee.  What you'd want to know is what can you do with a 401(k) or Traditional IRA once you leave the U.S.  For example, if you are not a U.S. citizen and leave the U.S., can you convert your Traditional IRA to a Roth IRA?