arthur36

Thanks for the responses.

As I move on an L1 it is of course not certain I can stay forever - but the company will sponser me for L1 then GC, I guess the next step would be Citizenship. I live and worked in the USA before for 2 years and I think if I go again I will try and make it more permanent - just before I go just want to make sure I can organise security for the future.

dakota44

Given that the economy is tanking..security for the future may be an elusive thing.

Steerpike

Every penny you contribute to 401k is tax deductible, so even if your company does not match anything, it's still a great benefit. I've contributed the max for over 20 years regardless of what the company matches. Yes, a company match is an even bigger incentive, but don't let it's absence fool you. Other than mortgage interest, a 401k is one of the few great tax deductions left in the US for 'average wage earners'.

You can also take money out of a 401k before 59.5 without tax penalty under certain circumstances. There is a rule that says you can start making withdrawals from a 401k early, without penalty, as long as you continue to make the same withdrawals each year until you reach 59.5. So - at 50 you can start withdrawing, you just have to take the same amount out each year from 50 to 59.5.

See this page for more info: http://www.retireearlyhomepage.com/wdraw59.html . Extract: "Under current tax law (Internal Revenue Service Code Section 72(t)(2)(a)(iv)) you can avoid the 10% penalty tax if you take "substantially equal periodic payments.""

Rete

I've been working for 44 years and no company has ever matched, fully or partially, my 401K contributions. Why would a company's contribution be the deal maker or breaker. You are either saving for your retirement and lowering your tax base or you're not.

meauxna

If I told you that for every $10 you took out of your paycheck and deposited into a savings account, I would deposit $5 at no cost to you.
But you'd only get my $5 if you put in your own $10.

Wouldn't that be an incentive to you?

Now say Rene works somewhere that lets her save that $10. they don't have matching, but she can get in on the savings account at least.

And then Bob. Let's say he works somewhere that doesn't offer him either option. They hand him directions to the savings and loan down the street and tell him 'good luck'.

If a person were going to choose between 3 otherwise equal employers, wouldn't that make a difference?

nun

I think you are getting ahead of yourself a bit. Certainly it'd good to plan for retirement, but until you've been in the US for a while I'd assume that you'll be retiring in the UK. So, if you do get the L1 and start working in the US I'd make sure you apply to keep paying Class 2 NI contributions. It's only a hundred pounds or so a year and ensures that you get UK state pension.

When you get to the US start looking at the various US taxed deferred retirement savings options you have. These go under names like 401k, 403b, 457 etc which all refer to paragraphs in the US tax code. There are different plans for different types of employment, you'll probably be eligible for a 401k plan in which you put money in before tax and your employer will match up to say 4 or 6%, the amounts differ. These accounts are meant for retirement so plan on not needing the money until you are 59.5 years old. Then you take the money out as income.

You'll be paying US FICA tax, which is like UK NI, however, you won't be eligible for a US state pension until you've paid in for 10 years. But the good news is that FICA payments can be applied to your NI contributions if you don't have enough to qualify for a full pension when you retire.

Don't forget that you can save for retirement by simply putting money in after tax investments too. However, if you become resident in the US holding UK, ie foreign, investments like unit trusts can be a US tax minefield. So I'd take some advice about what to do about your UK investments before you move to the US.

Steerpike

No one would argue that having a company match is a good thing. But with or without it, the 401k has advantages in it's own right - the tax deductible nature of the contributions.

So yes, if you had the choice of two jobs, identical in all other aspects, and one offered a 401k match then that job would have the edge. But in reality you are not going to be considering two identical jobs so the subject is moot.

As to the earlier comment about 'choosing a state with no state tax' - that's also too simplistic. I live in CA which has the highest state tax (I think). But I'm willing to bet good money I can make a lot more income here in CA than in a tax-free state, at least in my field (Software/IT). Not to mention the fact that most tax-free states suffer the consequences - poor infrastructure, etc. I could probably move to Nevada and avoid the 9% marginal (6% effective) state tax, but would probably drop 20, 30% in salary and ... have to live in that miserable state! Washington State has no state tax, but has very high property taxes and sales taxes to compensate. Don't choose your state of residence based on tax issues - life is too short!

You should choose your job based on the overal 'package' (prospects, challenges, income, benefits, etc) and you should choose your state of residence based on similar ideas - weather, opportunity, attitude of the people, career prospects, etc. Also, one job does not make a career. The huge benefit of being in the Bay Area is that there are thousands of jobs in the same field; so if I were to be laid off or fired, I could find many similar jobs 'next door'. If I were to find a great job in tax-free state 'x', I may be ok until that job evaporates. I know several people who've moved out of state following some job opportunity, only to see their careers hit a brick wall when the local economy took a dive. Silicon Valley has been a great 'job engine' for the 25 years I've been here and shows no sign of flagging. So yes we have high property costs and high taxes, but - I'm convinced I'm better off here financially than anywhere else in the country.

nun

....but you have to live in CA...I remember the place in the mid 90's just after the dot com crash and it was a depressing place back then. Also Silicon Valley is way over hyped as a place to live and work. I've spent some awful days commuting in Sunnyvale and the towns like San Jose have little to recommend them if you want to do anything other than have a nice meal and a few drinks.

The only thing that Silicon Valley has going for it is some over paid jobs and that you can go to San Francisco. I haven't even mentioned the earthquakes.

Steerpike

It's all a matter of taste, I guess. I've lived here for 25 years and LOVE it. I was here in '89 for the big quake (at the Giants/A's game, as it happened!).

Sunnyvale/San Jose are not my preferred locations. I've lived in the city of SF itself, which is great, and now I live out in Walnut Creek, which I think is 'perfect'. I should have said 'Bay Area' and not 'Silicon Valley' - my jobs have been in Palo Alto (fantastic!), Santa Clara (yuk), SF (great), Walnut Creek (great), San Mateo (not bad).

I've travelled all over the country and would love to move out of state at this point, selling my very expensive home here and buying something for much less elsewhere. But nowhere I've been has the mix of culture, food, weather, jobs, attitude, lifestyle. Oregon has a few possible locations, Santa Fe is not bad, but 99% of the country is not for me.

Yes, the dot-com bust was a bummer in 2001 (not mid-90s; that was the housing slow-down). While many of my friends ditched their 'good jobs' for 'dot com promise' jobs, I stuck it out with a company that had a product and a profit, and when they all got laid off, I was still employed. I've been out of work for only 6 weeks in 25 years, and at this point, people are kicking down my doors asking me to jump ship to their company - the bay area is fully recovered at this point. My company is at this moment trying to hire a senior java programmer and can't find one, even though we are offering six figures. The market is great for qualified people.

But anyway, back on thread - my point was simply - don't assume that just because a state has high/low/no state tax that will be better off - there are many more factors to consider. And don't avoid 401k just because there is no match!

nun

I agree that there is a lot more to consider than just income tax. If a state has low income taxes they generally make up for it with high sales and property taxes. If there is no match with the 401k I wouldn't start contributing until I'd saved a good deal to regular after tax investments. Once that is done I'd get into the 401k for its tax deferral, but its not a way to go until the OP has decided to stay in the USA long term. Until he/she knows that I'd just save after tax in regular accounts.

FYI I do envy you living in Walnut Creek as there's a bicycle company there, Rivendell Bicycle Works, that I'd like to visit.

snowbunny

Can anyone recommend a mutual fund that is primarily focused on European companies? PM if you like. (okay, this is a tangent from the original thread but...)

nun

Most major MF companies have such specialty funds. A good one is
Vanguard European Stock Index Fund, VEURX

https://personal.vanguard.com/us/Fun...FundIntExt=INT

Steerpike

Just curious - ignoring the OP for a moment, what is the basis for your recommendation here? I'm personally questioning now whether to continue going 'full bore' with my 401k contributions since I'm considering early retirement, and for that I could make better use of after-tax savings. My 401k is already at a very healthy level, and by the time I reach 60 it will be solid. I'm considering stopping the 401k and instead investing in after-tax vehicles, but - I can't seem to justify it. The tax-deduction for me is so valuable, and - now that I know I can withdraw the 401k early (repeating the link here as I think this is a little-known feature: http://www.retireearlyhomepage.com/wdraw59.html ) without penalty, I'm still of the opinion that 401k is the way to go.

EDIT: the link above describes how you can withdraw early from your IRA, and NOT from your 401K. For me, the distinction is not important because I have rolled the vast bulk of my money from 401k to IRA due to job changes. But it's true that it does not apply to 401k. Whenever you change jobs, you have the option to roll over to an IRA and that's what I've always done.

fatbrit

Can never understand why some people don't do this and...even worse...roll them into their new company plan. In an IRA, you're in much more control.

Longy

I think the idea in putting money into a Roth IRA is that your money is not taxed when you take it out. This is a good guard against any future tax rises.

Also is the 401K deduction really that valuable to you? I pay into one also, but don't see why people fall over themselves about having one is making things better for them now. Obviously its a great thing to have in retirement, but I don't see how it is benefitting you now. You are still reducing the amount of money you take home whichever way you look at it. And that money will be taxed when you take it out - admitedly at a lower rate then it would have been if you are in a high tax bracket.