tom169

Individual Retirement Account. Not related to Ireland.

https://investor.vanguard.com/ira/iras

Your employer may match either, but employer contributions are always pre-tax.

You can make voluntary National Insurance contributions.

durham_lad

I would say that you should do a 401k, at least up to the employer match, otherwise you are walking away from free money.

Whether or not you put it into a Roth 401k is a guess on your personal future tax rates. My wife and I didn't have the Roth 401k option and ended up with a large tax deferred pot of money when we retired early at age 55. Withdrawal of that money becomes mandatory starting at age 70.5 and for me and my wife it would move us into a higher tax bracket because by then we will also be receiving both UK and US private and State pensions. For the last 7 years I have been doing "Roth conversions", moving money from the tax deferred account to the Roth tax free account and paying US tax on the amount converted. (Roth distributions when taken are also tax free in the UK if you happen to move back at some time in the future). I will continue to make conversions so that all our retirement money is tax free by the time we are 66/67 years old.

Although there is an income cap on being eligible to make Roth contributions there is no salary cap on making after tax contributions to a regular IRA and there is no restriction on how much and when Roth conversions can be done, so high earners make contributions to a regular IRA and then immediately convert that to a Roth. The only tax due would be on any gains made between the contribution and conversion.

Giantaxe

... assuming that all the money in one's regular IRA(s) had been contributed post-tax.

durham_lad

The op is brand new to the US so I didn’t add that wrinkle given that he will not have any retirement accounts at present.

When I retired all my 401k money was pre-tax but I also had a traditional after tax IRA (Roth’s hadn’t been invented during my working life). Rather than immediately roll the 401k to an IRA I did a rollover of my existing IRA to a Roth, paying tax only on the gains. The following year I rolled over my 401k to a Roth so I now don’t have a basis to track each and every year.

Giantaxe

Right... just wanted to make sure others reading this wouldn't assume that you can always do such a "tax free" exchange from an IRA.

Very smart! Wish I'd got this option but four (yes, four!) 401(K)'s from past employers were closed, so I was forced to move the money to an IRA.

durham_lad

I learned that trick from an early retirement site I frequent. Sites like this site and others provide so many hints and tips on all sorts of things from people willing to take the time and share their experiences with others.

LouisB

Where would I find the definitive income limits allowed for 401k and Roth IRA savings plans? Is it also state dependant? I’m in NY state currently, could easily by NJ in a couple of years...

MidAtlantic

https://www.irs.gov/retirement-plans...ibution-limits

https://www.irs.gov/retirement-plans...e-annual-limit

They are national limits, not state dependent.

MorsePacific

Are you in Brooklyn / Queens by any chance? I stayed at an AirBnB for a couple of weeks and walked the Pulaski bridge each morning to get the 7 into Midtown

I would recommend a 401k, it's a no-brainer as even if you leave the country to go home you can take the money out.

A HSA is similar - you can take the money (minus tax) if you leave, and it rolls over each year so it's smart to save. You can use what you accrue to pay for any health issue that might arise. I'm on an HDHP with HSA plan, so my deductibles are high but if I don't use it for a few years, I'll have a nice cushion of a few thousand dollars to use.

Don't go for an FSA (Flexible Savings account) as that's a 'use it or you lose it' each year.

mrken30

I used to visit the dentist and eye doctor in October and then I would know how much to put away in FSA. I would just wait until January before I spent the money.

Pulaski

Yeah, they're just like piggy banks to be raided for a vacation cruise, the deposit on a new car, or a new entertainment system. .... Not!

You pay all the tax you saved if you draw the money out, and an additional 10% penalty for drawing money out of your HSA. Honestly, they're great savings tools if you use them for the intended purpose, but barely worth the faffing around if you expect to cash them out again in the relativity near future.

The fact that Americans are willing to cash-out their 401k's at the drop of a hat explains why so many Americans have diddly-squat in pension savings!

Giantaxe

Also a 10% penalty in addition to it being taxable income if you withdraw from a regular 401(K).

Pulaski

Thank you, I thought that was the case, but wasn't sure. .... An employer match can tip
the balance, and make the process marginally beneficial, but it's still a huge waste compared to keeping the account and using it for its intended purpose.

MorsePacific

Well, clearly that's not what I was advocating

For someone like me who has just arrived to the country and hasn't yet decided if they're staying longer than the term of their visa, it's good to know that even if you enter into 'long term' financial obligations you can withdraw and go home without taking too much of a financial hit.

The advice I got from staff in my company was the HSA was the best-of-both-worlds. If you decide to stay after 3 years (or however long your visa is) then you've already been investing and good for you! If not, you take the hit and at least get the bulk back.

Pulaski

Overall a fair point, especially the bit about the HSA.