xathras

Hi,

Sorry people its quite a loaded question.

I'd done some searching here and just adding in a search criteria of taxes doesn't help me. I'm trying to be understand for 2012 onwards the best approach to

1) Keep my tax in order and ensure I'm getting the right amount of deductions. Let me put some context:

a) I'm single (living with my girlfriend - but that doesn't count - at least I think it doesn't).

b) I'm 30

c) I have a UK student loan. Look at some articles/posts here I think I cannot claim interest back. Which is a pain. Since I'm going to be paying almost $6000 per annun. I only have £10,500 to pay back

d) I never claimed my moving costs to the US (when i got here in Dec 2011). Can i still do this?

e) I recently leased a car, but i think the state of illonis doesn't cover the return on the registration fees?

2) Am I right to take up a 401k? I'm on a h1b. My employer does a 100% match up to 4%. I'm currently doing a 4% to get the max match. I have approx $2500 saved

3) I am investigating getting a Roth IRA thoughts? I honestly don't understand them..

Would appreciate any assistance.

Regards
Wayne

nun

So I imagine you are a UK citizen resident in the US on an H1B visa.

How long have you been in the US and how long do you intend to stay? Have you filed a P85 with HMRC?

You can file amended taxes on a 1040X 3 years in arrears so you should be able to claim moving costs for 2011.

It's a good idea to do the 401k up to the 4% match as that is free money, but you should be prepared to leave the money in the account until you are 59.5 to get the best advantage form it.

For a ROTH you pay into it with money you have already paid tax on and it grows tax free AND any money you eventually take out will also be tax free in both the US and the UK. Again the ROTH is a long term investment.

You should look into paying Class 2 NI contributions while you are abroad as they are very inexpensive.

xathras

Hi, can you provide a little more on this? Whats the benefit?

yes, I'm on a H1B and i have filled a P85. I got a marginal tax refund.

nun

If you grew up in the UK and now work abroad for a foreign employer you can pay voluntary Class 2 NI. It only costs 130 GBP a year, so it's inexpensive and it gets you a year on you contributions record to qualify for UK state pension. If you think you'll only be in the US for a few years or that you'll have 30 years of contributions from working in the UK then you don't need to make voluntary contributions, but if you might stay in the US for an extended period they are a good idea.

In my situation I came to the US at 25 on an H1B. I had 5 years of NI contributions. I'm now 50 and have been making Class 2 NI contributions for 25 years and so now qualify for full UK pension. When I retire I will get both a UK and a US state pension.

xathras

Thanks.. I'll check this out. Makes great sense and I have nothing to loss (well apart from £130) which is a drop in the ocean compared to getting two pensions when I retire
Added rep

chuckles67

I agree. My view is to try not cashing out 401K if you do leave USA - this will become part of your diversified portfolio to help you retire. You do need to check carefully the charges of the investment funds available in your 401K, and consider where to allocate into lower cost options. My 401K allows me to use an external trading account such as Vanguard that do offer low cost retirement funds.

Michael

Once he leaves the company, he can rollover the 401K to an IRA and the IRA could be a discount brokerage account allowing any type of investments.

nun

A ROTH IRA might be slightly better than a traditional IRA becuase the ROTH gains and income are tax free in the US and the UK.......obvioulsy the tax due when making the transfer has to be considered.

Michael

Plus the 10% penalty.

100weight

I didn't grow up in the UK but I worked (and made contributions) for 10 years. I don't currently work in the US. Can I still make class 2 contributions?

CWT

jeffreyhy

There is no 10% penalty when rolling over a 401k to either a traditional IRA or a Roth IRA. Only the tax that wasn't paid when the money went into the 401k if the rollover is to a Roth.

Regards, JEff

nun

I think the comment was to point out the 10% early withdrawal penalty on a TIRA and that there is no early withdrawal penalty on your ROTH contributions.

nun

No, you must be employed or self employed to pay Class 2. You might be eligible to pay Class 3 though.

Michael

I think Jeff is right since I believe a few years ago the law was changed to eliminate the 10% penalty for rolling over a 401K to a Roth IRA. I believe before that time, there was a 10% penalty when rolling over to a Roth IRA and I had forgot about the change.

Anian

If everything tax-wise stays as it currently is (or taxes get higher), a Roth 401k seems to generally give more money by the time your retire if you only 30, however no one will actually tell you this because it counts as financial advice and you could sue them. So don't consider what I have said to be advice on choosing one! Lots of comparison tools on the net where you can plug your figures in and see how yours turns out.