augigi

I am here on E3 visa. Someone at work was asking why I'm giving away "free money" by not contributing to retirement plan - the employer matches the contribution up to a certain limit. I didn't do it when I got here because you needed 1000hrs of service before being eligible for matching, but I am now.

I was of the impression that it wasn't worth it as to cash out when I go back to Oz would be prohibitively expensive.

What do others do in this situation? Would you contribute to get the matching amount (plus, it's pre-tax contribution so would save some taxable income that way) or just skip it?

I am financially illiterate, so really don't know.

Just Jenney

I'm probably not as financially literate as I could be, but I guess I would try to compare the employer's contributions to the early-withdrawal penalty, and then see if I'd end up with a profit.

For example, let's say you contribute $1000. If your employer matches 50%, then that brings your total savings to $1500. If the early-withdrawal penalty is 20%, then you'd end up with $1200 -- or a $200 profit.

But if your employer only matches 25%, bringing your total to $1250, and the penalty is still 20%, then you'd only end up with $1000 -- the same amount you ended up investing in the first place.

Of course, then there's the matter of the paperwork involved to get your pay-out. I've never done that so I can't say if it's easy or complicated, but it's something to consider regardless.

~ Jenney

fatbrit

Do the math -- the tax penalty is 10%, and you'll also be taxed on it as income in the year you withdraw it.

AdobePinon

My decidely half-baked plan (before I became a USC) was to:
(a) Maybe let it sit a few years to outpace the losses,
(b) Remove it in a tax year subsequent to the leaving year to minimize US-sourced income, and eliminate state income tax liability,
(c) File 1040NR to reclaim as much of the tax as possible.

No idea if this plan would work though...