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Is a 401k worthwhile if you're only staying a couple of years?

Is a 401k worthwhile if you're only staying a couple of years?

Old Dec 16th 2009, 11:27 pm
  #16  
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Certainly is a huge difference.
I am very sure. The audience were all Brits who gasped and asked questions and the conclusion was that its best not to disclose the "I wont be back part", although the CPA and Attorney would not accept that as an option (but they did smile...)
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Old Dec 16th 2009, 11:30 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Here is an article online about this "exit tax"

http://tinyurl.com/ycy362p

It's a long read......
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Old Dec 16th 2009, 11:34 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by scotch03
Here is an article online about this "exit tax"

http://tinyurl.com/ycy362p

It's a long read......
Right, but this is specifically for those who have US citizenship and give it up.
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Old Dec 16th 2009, 11:38 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Indeed, as I said the seminar speakers were very clear that it covered giving up residency regardless of citizenship.

Anyway, all it means is that if anyone is thinking about doing it they may want to consult a CPA with experience in the expat arena.
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Old Dec 18th 2009, 4:23 am
  #20  
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by scotch03
If you surrender your residency then your 401K/IRA is taxed at an additional 30%, plus 10% early withdrawal as well as income tax.

I only learned this at a seminar a few weeks ago hosted by the British American Business Council in SF, who had tax and legal professionals give the talk.

It does assume one makes full disclosure when liquidating.........
I came across a 30% withholding situation today from my broker, I have a Traditional and a Roth IRA with them, I am USC / UKC but the brokers stated if I withdraw from the IRA's as a non-resident back in UK they would withhold 30% even from the tax free Roth. There was no explanation, just this is what they do carte-blanche.
So now I'm fixin' to pull out of the Roth before I leave these fine US shores. How would I ever get this refunded from IRS ?
I need to understand more though because if I pull my Traditional it will be classed as income in one shot and put me in a high tax bracket, not at all the intent of having a IRA.
From what I find searching the web the 30% withholding is for non-resident ALIENS, not non-resident US Citizens but I can't yet find confirmation.

Last edited by J.J; Dec 18th 2009 at 4:38 am. Reason: clarity of message
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Old Dec 18th 2009, 10:20 am
  #21  
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Fatbrit mentioned it and its a biggie - you have to vest first.

Some companies are two years, others 3 or 5. If you aren't vested, that 'free' money (employer contributions) is zilch.

Still, if you don't vest, the exercise should be a decent way to earn as opposed to a savings account, and you can't know your tax burden/base when you withdraw it. You can roll it over or wait until a low tax year.
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Old Dec 18th 2009, 2:20 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by J.J
How would I ever get this refunded from IRS ?
You file a tax return. (But don't expect a 100% refund.)
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Old Dec 18th 2009, 4:28 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by AdobePinon
You file a tax return. (But don't expect a 100% refund.)
What's more she is a US citizen so has to file a yearly US tax return on her worldwide income anyway. I'm really not sure why she thinks she has an issue, other than it being a pain in the ass to get money withheld on a Roth withdrawal and then having to get it refunded the next time she files a return.

Last edited by Giantaxe; Dec 18th 2009 at 4:31 pm.
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Old Dec 18th 2009, 4:30 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by Bomjeito
Some companies are two years, others 3 or 5. If you aren't vested, that 'free' money (employer contributions) is zilch.
I've always had immediate vesting of matching contributions - guess I've been lucky.
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Old Dec 19th 2009, 5:33 pm
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

Originally Posted by paulwicks

So, my thinking is that if I'm only planning to be in the US for a limited period (say a couple of years before returning back to UK), then it's not worth it from a hassle perspective because you'll only have put away a small amount which will be inaccessible for 30 years (and knowing me I'll forget about it).

Sound about right? Much appreciated.
If you have a UK pension on the go (or start paying to one before you go) then you can still put into it (up to £3,600 gross p.a.) for 5 years after you've gone - by then your 2 years will be up and you will have a better idea about where you want to do your pension planning. Meantime, you still get your tax relief, don't get tied into a US plan and build your fund.
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Old Dec 20th 2009, 4:24 am
  #26  
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Default Re: Is a 401k worthwhile if you're only staying a couple of years?

@ OP, IMO, I wouldn't invest in a 401k if I was planning to leave the US after a short time., and if I did invest in one it would be only up to the amount that would get a matching contribution from my employer and only then if the match amount exceeds the penalty payable for early withdrawal if you liquidate it while still resident in US.
But if you leave it in place when you leave the US then the custodian is obligated to withhold an amount of 30% as tax to be passed to the IRS if you have a non-USA address when you eventually withdraw the monies. The way to avoid this withholding is to file a IRS Form W-9 confirming you are a US Citizen or legal Permanent Resident - and it is unlikely you would be either after a short stay in USA. Even if you did get a PR Green Card and you move out the US then the Green Card defaults to invalid after a period of (1 year??) and you suffer the 30% tax.
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