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401K and HSA : can we cash these out when returning to UK

401K and HSA : can we cash these out when returning to UK

Old Sep 11th 2016, 11:44 pm
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Default 401K and HSA : can we cash these out when returning to UK

Hi All,
I may be starting my US job early next year. As I'm not sure how long I'm going to be in US I don't want to contribute much towards 401k or HSA. If there are any mandatory contributions will I get this(can I encash) when I return back to UK say after 2 years?
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Old Sep 12th 2016, 1:56 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

A 401k contribution is not normally mandatory, but most US workers pay into it for two reasons - one, it's retirement savings and two, there is most often a company match.

You CAN cash in a 401k plan at a penalty. If you get a good company match, it may well be worth your while as the extra may outweigh the penalty costs and you get back more than you put in. A consult with an accountant is in order here - or you may get free advice from the company CPA or the firm handling the 401k.
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Old Sep 12th 2016, 2:40 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

Early (before age 59.5 if you leave employment before age 55) withdrawals from a 401k are subject to income tax and a 10% penalty. Early non-medical HSA withdrawals are taxed as income and have a 20% penalty. Neither are mandatory.
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Old Sep 12th 2016, 10:39 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

Thanks everyone, so I will start with the least possible contribution I can get away with while keeping in mind Guindalf's advise on employer matching.
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Old Sep 12th 2016, 11:19 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

Sorry another quick question. Let's say I don't contribute anything to HSA and only my employer contributes some amount.
If this is unused when i leave US(if i leave US) back to UK. Can i encash this paying the tax on it plus 20% penalty, which I should still be better off?
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Old Sep 12th 2016, 11:20 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

Watch out for 401k vesting rules (Google for a quick definition).
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Old Sep 12th 2016, 11:59 am
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by barua View Post
Sorry another quick question. Let's say I don't contribute anything to HSA and only my employer contributes some amount.
If this is unused when i leave US(if i leave US) back to UK. Can i encash this paying the tax on it plus 20% penalty, which I should still be better off?
I have to admit I don't understand why you want to minimise contributions or cash out of your 401k. It doesn't make financial sense. I'd advise you to:

1. Contribute the most you can - partly because contributions are before tax, and partly because of the employer match. For most people it really is a great deal.
2. It is pretty easy to access when you retire in the UK. Lots of people here are US-resident but still have UK pensions, and they get paid just fine. There may be a small US tax reporting requirement, but I'm pretty sure that the tax-free contributions and employer match will make it worth putting up with that.
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Old Sep 12th 2016, 12:21 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by Owen778 View Post
I have to admit I don't understand why you want to minimise contributions or cash out of your 401k. It doesn't make financial sense. I'd advise you to:

1. Contribute the most you can - partly because contributions are before tax, and partly because of the employer match. For most people it really is a great deal.
2. It is pretty easy to access when you retire in the UK. Lots of people here are US-resident but still have UK pensions, and they get paid just fine. There may be a small US tax reporting requirement, but I'm pretty sure that the tax-free contributions and employer match will make it worth putting up with that.
This is great advice. ... If you're (only) in the US for four years, why would you want to throw away pension savings from 10% of your working life?

Having the funds invested in the US provides useful additional diversification to your portfolio, and you can always compensate by allocating less to investments in the US from your UK portfolio if you need to.

It was also pointed out on another thread recently that management charges appear to be significantly lower on pension investments in the US than in the UK.
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Old Sep 12th 2016, 2:41 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by Pulaski View Post
This is great advice. ... If you're (only) in the US for four years, why would you want to throw away pension savings from 10% of your working life?

Having the funds invested in the US provides useful additional diversification to your portfolio, and you can always compensate by allocating less to investments in the US from your UK portfolio if you need to.

It was also pointed out on another thread recently that management charges appear to be significantly lower on pension investments in the US than in the UK.
I agree with this, but if the OP will only be in the US for a couple of years the slight tax compliance hassle of the 401k might not be worth it, it really depends on how much effort the OP what's to put in. The ROTH is a bit more flexible and has zero tax.
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Old Sep 12th 2016, 3:24 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by nun View Post
I agree with this, but if the OP will only be in the US for a couple of years the slight tax compliance hassle of the 401k might not be worth it, it really depends on how much effort the OP what's to put in. The ROTH is a bit more flexible and has zero tax.
If there is a Roth 401k available, with employer match, yes this might be a good choice. My employer did introduce one about a year ago, but Roth 401ks are not that common yet.
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Old Sep 12th 2016, 3:38 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

the company says it'll match 50 cents to a dollar that i contribute(pre tax/and or Roth contributions) till a certain amount. Not exactly sure what this is (need to ask them). Got the 50 cents part but not 'pre tax and or Roth'
As i read(googled) ROTH is after tax contributions so no tax to pay at the time of taking out?
It's 100% immediately vested is what they say.
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Old Sep 12th 2016, 4:53 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by barua View Post
the company says it'll match 50 cents to a dollar that i contribute(pre tax/and or Roth contributions) till a certain amount. Not exactly sure what this is (need to ask them). Got the 50 cents part but not 'pre tax and or Roth'
Well, any company match is worthwhile, though a one for one match up to a certain level is quite common, and double what they're offering. If the "certain amount" is high though, it could still be a good deal.
As i read(googled) ROTH is after tax contributions so no tax to pay at the time of taking out?
Pre-tax is a normal 401k - you pay no tax on the money you contribute, but you have to pay income tax on the money you take out at the end. You googled right - for a Roth 401k, you pay with after-tax contributions, but money paid out in retirement is tax-free, including any growth.

Generally speaking pre-tax is better if you pay income tax at a lower rate in retirement, and Roth otherwise. Plus Roth should hopefully simplify your tax reporting.

It's 100% immediately vested is what they say.
That is good, and not that common. Though if you're transferring within the company, that may be why.
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Old Sep 12th 2016, 10:44 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

ROTH 401k funds have to remain for 5 years before you can take a distribution I believe.

For the little you will contribute, it may be worth leaving it in the 401k until age 55 and then take the tax free pension.
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Old Sep 12th 2016, 10:46 pm
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Default Re: 401K and HSA : can we cash these out when returning to UK

Originally Posted by barua View Post
the company says it'll match 50 cents to a dollar that i contribute(pre tax/and or Roth contributions) till a certain amount. Not exactly sure what this is (need to ask them). Got the 50 cents part but not 'pre tax and or Roth'
As i read(googled) ROTH is after tax contributions so no tax to pay at the time of taking out?
It's 100% immediately vested is what they say.
A lot of companies around here pay 50 cents on the dollar up to 3% contribution. So if you put in 3% they will put in 1.5%. Often there is also a maximum amount they will contribute.
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