Hi Everyone!:) Roth 401k

[sai]

Hi Everyone!

Happy to message you guy's!!!

I'm indian and currently working in US and I'm planning return to my home country in 5 years or maximum of 7 years. Currently holding 401k with my employer and maxed out and I trade very rarely and buys ETF's when I have cash.

I'm planning to take Roth 401k and planning to accumulate ETF's and trade sometimes , is it helpful to save taxes now and also will it helps me to save tax when I withdraws entire funds or partial when I'm leaving US? or I should not take roth 401k as I leave US in future?

Kindly let me know ... the cons and pro's of holding roth 401k for non-us citizen like me and what happens when I withdraw money leaving US

Please help me ...

[Chris Pascale]

Haven't invested in this, but want to say welcome to the US! Hope you love it here.

[sai]

Haven't invested in this, but want to say welcome to the US! Hope you love it here.

Thanks Chris for the wishes!!  :)

[ctuser1]

Roth 401k = you pay taxes now. This is beneficial when you *know* your tax rates will be higher in retirement when you will tap the money.

Do you *know* this? If not, why not do normal 401k + regular Roth (regular Roth X 2 if you are married)? There are income restriction for regular Roth, but that can be worked around with "backdoor Roth" - google it here and in Bogleheads.

With global move between US and another country, some tax games are often possible. I have worked abroad and it worked to my tax advantage - greatly. On 5 minute google - I dug up the RNOR status in India (https://economictimes.indiatimes.com/nri/nri-tax/all-about-resident-but-not-ordinary-resident-and-why-this-special-status-is-accorded/articleshow/18275734.cms). Perhaps you engineer a situation where IRS considers you non-resident and Indian Govt considers you RNOR - and withdraw money tax free?? Who knows? May be worth a visit to tax law experts in both countries!!

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Based on Bogleheads international investing forum - investment options seem quite bad in India. High expense ratio, and very difficult to invest internationally. So I'd probably leave some money invested in the US as a hedge even if you do return.

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Why do you want to return? There are significant financial costs to returning. You pay into Social Security and Medicare, but get nothing if you "return" before becoming a US citizen. As a visa holder - you have to have significant income and be making significant contributions to these. This could be a lot of money for you to leave on the plate.

[sai]

Thanks ctuser1 for response. Here is my answers

Roth 401k = you pay taxes now. This is beneficial when you *know* your tax rates will be higher in retirement when you will tap the money.

Do you *know* this? If not, why not do normal 401k + regular Roth (regular Roth X 2 if you are married)? There are income restriction for regular Roth, but that can be worked around with "backdoor Roth" - google it here and in Bogleheads.

With global move between US and another country, some tax games are often possible. I have worked abroad and it worked to my tax advantage - greatly. On 5 minute google - I dug up the RNOR status in India (https://economictimes.indiatimes.com/nri/nri-tax/all-about-resident-but-not-ordinary-resident-and-why-this-special-status-is-accorded/articleshow/18275734.cms). Perhaps you engineer a situation where IRS considers you non-resident and Indian Govt considers you RNOR - and withdraw money tax free?? Who knows? May be worth a visit to tax law experts in both countries!!

I have checked RNOR status and its applicable for 3 years to withdraw/collect assets from outside. I'm not eligible for Roth IRA and wifes is not working as of now. so unable invest in 401k with my wife
..... so dont know what to do now... in order save taxes..
--------------------

Based on Bogleheads international investing forum - investment options seem quite bad in India. High expense ratio, and very difficult to invest internationally. So I'd probably leave some money invested in the US as a hedge even if you do return.

what you said is right, I have checked the index funds in india with very limited options ..I think only 3 index funds available with low expense ratio

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Why do you want to return? There are significant financial costs to returning. You pay into Social Security and Medicare, but get nothing if you "return" before becoming a US citizen. As a visa holder - you have to have significant income and be making significant contributions to these. This could be a lot of money for you to leave on the plate.

I understand but I dont think... I will get GC/citizenship as its very long wait time to Indian's and meantime many lose working visa due to restrictions these days... its happened to my brother. so I dont have much hopes...

on top of it ... I have my parents in India to take care of... I want to serve them in their old days... my only hope is ...if I become FI then I will leave and will take care of them.... thats my plan...

[ctuser1]

I'm not eligible for Roth IRA and wifes is not working as of now. so unable invest in 401k with my wife
..... so dont know what to do now... in order save taxes..

Roth IRA != Roth 401k.

Roth 401k is through your work. Roth IRA is something you can open through some brokerage (e.g. Fidelity/Schwab) yourself.

You can't really use Roth IRA, or Roth 401k to save taxes now! They are for saving taxes on the investment growth later - when you are going to withdraw in retirement.

If saving taxes is your primary concern then you should keep maxing up the normal 401k.

It might help you to go through the investment order thread:
https://forum.mrmoneymustache.com/investor-alley/investment-order/
 

[rpr]

If I were in this situation and very far from retirement, I'd probably keep things simple.

-- Put in enough in  regular 401k to get the employer match.
-- Invest the rest in a standard taxable account.

Use the RNOR period to withdraw from the 401k and pay the taxes/penalty. Before I did the withdrawal, I'd definitely consult a good tax accountant especially one who had experience with returning Indians.

Good luck.

[sai]

I'm not eligible for Roth IRA and wifes is not working as of now. so unable invest in 401k with my wife
..... so dont know what to do now... in order save taxes..

Roth IRA != Roth 401k.

Roth 401k is through your work. Roth IRA is something you can open through some brokerage (e.g. Fidelity/Schwab) yourself.

You can't really use Roth IRA, or Roth 401k to save taxes now! They are for saving taxes on the investment growth later - when you are going to withdraw in retirement.

If saving taxes is your primary concern then you should keep maxing up the normal 401k.

It might help you to go through the investment order thread:
https://forum.mrmoneymustache.com/investor-alley/investment-order/

Thanks again ctuser1... I will check the investment order and will let you know if I have any questions

[sai]

If I were in this situation and very far from retirement, I'd probably keep things simple.

-- Put in enough in  regular 401k to get the employer match.
-- Invest the rest in a standard taxable account.

Use the RNOR period to withdraw from the 401k and pay the taxes/penalty. Before I did the withdrawal, I'd definitely consult a good tax accountant especially one who had experience with returning Indians.

Good luck.

I like the approach... Could you please let me know what you are referring for "standard taxable account."... is it roth IRA? or generic trading account.

[rpr]

-- Put in enough in  regular 401k to get the employer match.
-- Invest the rest in a standard taxable account.

I like the approach... Could you please let me know what you are referring for "standard taxable account."... is it roth IRA? or generic trading account.

It would be a generic account at a company such as Vanguard etc. Your contributions to this account will not be tax deductible, i.e. contribute with after tax money. If you pick tax efficient index funds such as VTSAX, etc. to invest in, there will probably not be significant capital gains distributions. There will be dividends, of course, but set them to reinvest. Since you are planning to go back to India and given that India does not recognize the tax-advantaged treatment of 401k, IRA etc, this is probably the best type of account to have for investment. 

[sai]

-- Put in enough in  regular 401k to get the employer match.
-- Invest the rest in a standard taxable account.

I like the approach... Could you please let me know what you are referring for "standard taxable account."... is it roth IRA? or generic trading account.

It would be a generic account at a company such as Vanguard etc. Your contributions to this account will not be tax deductible, i.e. contribute with after tax money. If you pick tax efficient index funds such as VTSAX, etc. to invest in, there will probably not be significant capital gains distributions. There will be dividends, of course, but set them to reinvest. Since you are planning to go back to India and given that India does not recognize the tax-advantaged treatment of 401k, IRA etc, this is probably the best type of account to have for investment.

Thanks rpr, Yes curently I'm holding etf's in etrade ... Thanks for the suggestion