Resident Alien

Hi all,

Am new to the expat community, having moved from the UK (London) to the US (NYC) 6 months ago.

As a single, relatively young (28) person, there were very few complications with moving over, however, now that i'm here, increasingly finding myself torn as to how to manage savings & retirement.

A bit of background:
- British Citizen, in the US on an E2 visa
- My employer has a fairly well established track record of sponsorship for Green Card, if that is something I want
- Own 2 properties in the UK, generating rental income (no intention to sell these in the next 5 years)
- Have a UK pension (no longer contributing, but may look to restart contributing)
- Have UK savings, currently earning next to nothing

The crux of my issue ultimately comes down to how to plan for savings/retirement with my USD earnings, given I do not yet know whether I intend to stay in the US long term, or do 3-5 years and then go back to the UK. Appreciate that the answer to this massively impacts the approach.

- If my long term plan is to stay in the US, the answer I imagine is to max out tax efficient savings (401k, IRA, HSA etc) contributions.
- If my plan is to go back to the UK in 3-5 years, take advantage of 401k employer match, but not utilise full 401k, IRA, HSA tax free contributions & take my post tax savings back to the UK and invest/purchase property (Brexit dependent)

Where I could do with some input from yourselves is based on your experiences, is there a middle ground option that gives me the best of both worlds?

For example, fully utilise all tax free savings/retirement contributions & then just let them ride until retirement. How practical an option is this? Assuming I don't need the money any time soon, and I can let it ride to retirement, is that a prudent diversification, or is it an administrative nightmare? Does the administrative reality make a post tax savings retirement plan more realistic?

Has anyone chosen this option, returned to the UK and regretted it?

Any other advice anyone can offer in terms of prudent savings/retirement planning?

Appreciate this reads as a bit of a rambling, brain dump, I guess I'm ultimately looking to hear people's experiences to help shape my thought process.

Thanks

TexanScot

That's exactly what I'm doing - there's significant tax advantages in contributing to a 401k, and the money will always be there for me when I retire, wherever that is.

Once thing to bear in mind is that in most cases, you generally can't access your 401k money without penalty until you hit 59 1/2. I believe this differs from the UK, where you can access your private pension earlier at 55. I no longer pay into my UK pension since there's no advantage to me in doing so, and I plan to liquidate it at 55 or whenever I retire.

Depending on your income you might be hit by the Roth IRA phaseout, so you'll need to look into what's called a "Backdoor Roth IRA" if you want to be particularly aggressive with your retirement planning.

durham_lad

CLS91

Hi Durham Lad,

Tagging onto the post above, I moved over the pond to Texas from UK (Co.Durham) last year and have been contemplating a pension in the USA or the like.

Right now I'm unsure as you were back then on duration of my stay in the states. The company I work for do not contribute to my 401k and I have been weighing up a 401k vs an IRA recently. I'm going to do some more reading into this and the implications of converting a 401k over to a IRAs as you did.

Any pointers on this would be very helpful!

Cheers,

Callum

tom169

It's generally prudent to do a direct 401k to IRA transfer whenever you leave an employer. Often there is more selection and likely lower fees.

Pulaski

There are significant differences though - in the UK a private pension is pretty much a fortress, untouchable until you retire or reach the specified age, whereas in the US a 401K can be tapped or liquidated (with penalties), and can be liquidated in the event of bankruptcy.

Funds in a 401K are also semi-accessible through a loan, which most employers allow. While I don't recommend that a loan from your 401K is a good idea, it is a possibility (subject to restrictions and a capped amount - I believe that 50% of the value or $50k, whichever is less and a maximum term of 5 years is typical, or 30 years if used to purchase a home) and can make sense under some circumstances.

TexanScot

Yes, you're quite right.

I did debate tapping my 401k to help with my house downpayment, although after the way the markets have performed over the last 12 months I'm extremely glad that I decided against it in the end.

tom169

Good. It's one of the worst financial decisions in my opinion - unless you're avoiding something like a foreclosure. You're tied to your employer once you take it, as if you leave your job (through your own decision or not) you have to repay it in full fairly quickly or take it as an early distribution (with penalties / tax implications).

Owen778

That depends on the 401k program fees and available funds, but your statement hasn't been "generally" true for about 15 or 20 years. These days, most employer 401ks are better than a personal IRA, not worse.

Pulaski

While you're an employee, yes, but that can change when you leave your employer, leaving you locked into a very limited range of investments and potentially getting charged management fees that you could otherwise avoid. Hence the general advice to take your 401k with you when you leave an employer.

Owen778

None of the 401ks for which I know the details have any additional fees or reduced investments for former employees. There are still plenty of really bad 401k plans out there, but many of them are small business plans from high-cost providers. Most big businesses have the negotiating power and these days have the knowledge and awareness of their fiduciary responsibilities to choose low-cost plans from Vanguard / Fidelity / Schwab etc., or at least to negotiate a decent plan from a higher-cost provider. I think it's much better advice to check your 401k's fees after you leave and move the funds if needed. "You should move it to an IRA" is not good general advice, especially since it complicates use of a backdoor Roth IRA or 401k.

I tried to find out what proportion of 401ks charge additional employee fees, but all I could find was a statement from a survey funded by TD Ameritrade, that "95% of 401k participants pay fees". Since this includes any mutual fund or ETF expense ratios, this is not a helpful statement. I'm guessing most of the remaining 5% misunderstood the the question.

Pulaski

You have inverted what I said, or at least inverted what I think I said - you will have considerably more choices of funds if you pull your investments out of a 401K when you leave your employer, not that that the employer will (further) restrict your choices after you leave.

Similarly, you will likely have access to funds with lower management fees than the restricted number of funds you can choose from within a 401K, not that your ex-employer will charge higher fees after you leave.
That is ironic.

Owen778

Then I didn't misunderstand you. Yes, you would have access to more funds by rolling over to an IRA, unless your 401k has a self-directed brokerage option, which most do not. No, you will not necessarily have access to funds with lower management fees by doing so. Most 401ks with large employers use institutional index funds, which have lower fees than the equivalent funds available in IRAs.
Doubly so.

Pulaski

You have that choice in IRAs too. And there are rather more choices of low cost index funds "out there" than an employer's 401K offers - I only have seven equity index funds to choose from, five of which are US domestic, and two of which are "global".

Owen778

Institutional funds are only available to institutions. They are never included in IRAs.