401k
 

Guys

Apologies if this has been asked before, but Im interested in hearing peoples thoughts on 401k's.

With my contract, I get a 401k package with a company match up up to a max amount. I pay into a personal pension back in the UK, but turning down free money isnt in my nature so Im considering taking advantage of the 401k.

The thing is, if I go back to the UK in 2 years time (the minimum time I have to be in the US) - which i dont intend to do right now - will I still get access to it or is it money that I'm just going to waste?

Is there a minimum time its worth paying into a 401k scheme before it becomes worth doing?

Advice is welcome and appreciated.

Re: 401k
 

It's worth doing, just roll it into a IRA if/when you leave....though if you are certain you'll leave after 2 years, how much you put in will probably be what makes it worth it or not with the tax situation, or penalty for pulling the money out.

Can only bung in x amount a year, can't remember the exact amount, but think it's in and around the $16K a year mark.

Re: 401k
 

There are a couple of issues here.

The first issue concerns the employer's matching contribution - some plans have a vesting period for the matching contribution which mean that you forfeit some or all of the matching contribution if you leave before that time is up. Not all plans have this but many do - you need to check the specific details of your plan.

The second issue concerns 401K plans in general. If/when you go back to the UK you want to get your money out of the 401K you will pay an early withdrawal penalty of (I think) 10% and the money will also be taxed as ordinary income at the time of the withdrawal. If you get to keep the employer matching contribution and it is sufficient to offset the early withdrawal penalty (which should be the case if you only contribute up to the maximum amount for the employer match) then you would still come out ahead. Of course you also have to consider what you would have done with the money otherwise.

Or, you could leave the money in the US in either the 401K (if the plan allows that) or in a roll over IRA (although keeping the money in the US may end up being more trouble than it is worth depending on the amount)

Re: 401k
 

So no further along really. Other than the fact that I could be OK if I put in the maximum amount that the company will match, which I think is 5%?

Re: 401k
 

Don't turn down the free money. The 401k is just another part of your retirement savings.

Read the terms and conditions of the 401k to understand vesting etc. If you only stay in the US for 2 years you should roll it over to an IRA or better still a ROTH IRA just before you return to the UK. I'd recommend doing that with a company like Vanguard or Fidelity. You'll have to pay US tax on the rollover amount, but it will continue to grow both US and UK tax free and at 59.5 you can take money out of it also UK and US tax free.

You mentioned that you have a UK personal pension fund. You should check the US tax/FBAR implications of that with a dual qualified tax advisor.

Re: 401k
 

many thanks for the information so far.