Author Topic: Where should I start  (Read 2610 times)

vagabond

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Where should I start
« on: May 09, 2013, 09:51:04 AM »
Hi All.

Have been following this forum for past few months & trying to apply most of it. Thanks everybody for that.

To give a background , I am in my early 30's with a stable 100K+ IT job married (working wife) with a kid & without a house yet. Don't intend yet to buy a house here - being an immigrant , might go back to my home country few years down the line. My employer does not contribute to the 401k and so I don't have anything going there- though he does have a 401k plan which i can contribute to. I do max out the allowed 5k/5.5k in the traditional IRA with my bank. So that leaves me with a substantial take home every month & also higher taxes at the end of the year.

My question was
1)should I still contribute to the 401k for tax efficiency ( taking into account I might not retire here in US  & also 0 contibution from my employer. I might end up paying the penalty for early withdrawal )
2)Any advice on investing in specific tax efficient vanguard funds that I can invest in & park my money to grow & cover for inflation while I am here.
3) Any other option that members can think & advice.

Regards,

Joet

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Re: Where should I start
« Reply #1 on: May 09, 2013, 10:08:18 AM »
I've always wondered that too, I presume its perfectly fine to put your "old man money" in the 401k and use the 72t early/consistent withdrawl to pull it out.
You didnt list your state/taxes but I assume it isnt zero, and you're solidly in the 28% federal tax bracket so hiding your $$ in a 401k makes sense to me.

I've had foreign co-workers who forego the 401k for the same argument you just listed [I'm leaving the country in a few years] but I never understood that?

If it's long term savings its long term savings no? If you will need the money in the next few years it doesnt belong in your 401k but if it can stay there for 10+ years I think it does.

Anybody else have an opinion on the topic? My foreign co-workers almost unanimously dont participate in our 401k. Am I missing something?

icefr

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Re: Where should I start
« Reply #2 on: May 09, 2013, 10:16:28 AM »
I'm going to guess that you're from India. I'm Canadian and working in the US. We have tax treaties around 401(k)s and sort of around Roth IRAs, so I've been contributing and will likely leave them here until full retirement age if I go back to Canada. I don't know anything about India's tax treaties with the US though so that's a different story.

If you don't have tax treaties making the gains not taxable until you withdraw the money AND you're pretty confident you'll move back, I wouldn't be contributing a single penny to your 401(k) beyond the employer match, which in your case is zero. I probably wouldn't be contributing to the Traditional or Roth IRA either if I were you - you'll still have to pay early withdrawal penalties on that. Why? When you withdraw the entire balance early, it'll be subject to normal taxation PLUS a 10% early withdrawal penalty, so if you have a huge balance, you could end up paying more in taxes than you would have along the way.

I would open a Vanguard account and use the following index funds:
* Vanguard Total Stock Market Index Fund Investor/Admiral Shares
* Vanguard Total International Stock Market Index Fund Investor/Admiral Shares
* Vanguard's Intermediate-Term/Long-Term Tax-Exempt fund or the one for your state
(in whatever ratio you feel most comfortable with)

As an immigrant still on a work visa, I also keep a full 12-month emergency fund in cash. If I lose my job, I'm in a bit of a bind. I also won't go work for a startup until I get a green card.

Joet

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Re: Where should I start
« Reply #3 on: May 09, 2013, 10:35:12 AM »
ah that makes sense, never knew that perhaps the foreign country in question might not reciprocate the preferential tax treatment

crux123

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Re: Where should I start
« Reply #4 on: May 10, 2013, 05:59:23 AM »
I'm going to guess that you're from India.

Thanks for ur suggestions , yes I am from India. I will try to gather more info about the tax treaties around 401(k)s between US & India.

crux123

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Re: Where should I start
« Reply #5 on: May 10, 2013, 06:21:47 AM »
use the 72t early/consistent withdrawl to pull it out.

My foreign co-workers almost unanimously dont participate in our 401k. Am I missing something?

Didnt know about the 72t clause- will explore , thanks.
As the employer contribution was "0" I felt it didnt make sense to contribute. The other reason of not investing could be - booming housing market in India with better returns to offset high inflation , higher interest rate for housing loans - 10% etc.