Understanding the intricacies of one country’s tax and retirement system is complicated enough. The process can become infinitely more difficult when you consider balancing these same policies in a second country. The entire process can leave one questioning the best way to save up and avoid a massive tax increase.
A 401(k) is a fantastic option for H-1B visa holders. By investing in a 401(k), you can save on income tax, experience financial growth over time, and take advantage of possible company matching policies. When you return home, there are ways you can withdraw this money with minimal tax penalties.
As an H-1B visa holder, it can be infinitely valuable to learn the ins and outs of a 401(k) retirement plan before wasting any time or money. In this article, I’ll be discussing the benefits of investing in a 401(k) retirement plan, as well as what to do with that money once you’ve left the country.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Should H-1B Visa Holders Get a 401(k)?
H-1B visa holders should get a 401(k) because it’s a retirement plan that allows you to save on income tax and enjoy a long-term savings plan. With a 401(k), you can have financial planners help you invest some of your income, and your contributions can prevent you from paying additional taxes.
Now that you understand what it is and how it can financially benefit you, let’s take a look at the specific benefits this retirement plan offers.
Saving on Income Tax
As a regular part of your paycheck, taxes are automatically deducted based on your income level. Generally, the higher your income bracket, the more taxes will be deducted. While this is an ideal part of a functioning society, it’s understandable that you wouldn’t be excited to pay taxes to a country you don’t plan to benefit from long-term.
When you participate in a company’s 401(k) plan, you can invest your money before regular income taxes are subtracted. This means that the more money you invest into your 401(k), the more untaxed income you’ll be able to enjoy later! There are specific fees and taxes associated with withdrawing that money subsequently, but I’ll address that at a later point.
Growth Over Time
The money that is portioned into your 401(k) account doesn’t simply sit there. Instead, it is invested by a team of professionals trained in helping your money grow over time. Your investment’s growth rate fluctuates with the market. However, on average, you can expect a five to eight percent growth rate on any money invested in this account.
While more risky investments can pay off at a more significant percentage, they also risk losing your investment. Money placed in a 401(k) account is generally stable, leaving it more likely to result in a secure outcome than your average stocks investment.
This investment is also surrounded by safeguards, keeping it protected from creditors and federal tax liens. By placing your money in a 401(k), you are putting it in a steady, secure position. The longer you leave this money in place, the greater your overall return.
Possible Company Matching
While not every company offers this benefit, frequently, you’ll find that a company agrees to match your investment partially. When interviewing and getting set up with your new position, be sure to ask about 401(k) investment matching. According to US News, even the bottom seventeen percent of 401(k) plans allow for a company matching of around three percent.
Though it seems difficult to part with your money before even seeing it, the more you contribute, the more your employer does, so you’ll inevitably end up with a larger sum when you decide to withdraw. By taking advantage of this policy, you are setting yourself up for what is essentially an increased salary and you’re able to keep more of the money you earn.
What Should H-1B Visa Holders Know About a 401(k)?
When investing in a 401(k) as an H-1B visa holder, take note of the fees for withdrawing your money early. You must also consider the possible taxes in your home country. It’s essential to thoroughly research the repercussions of immediate withdrawal before emptying your 401(k) account.
While it definitely pays to invest in a 401(k) as an H-1B visa holder, keep these possible issues in mind, especially when it’s time to take advantage of the nest egg you’ve accumulated.
Now, let’s explore how you can avoid unnecessary fees.
Early Withdrawal Fee
Because 401(k) plans are intended as long-term investments, there is a fee involved in withdrawing these funds before the age of fifty-nine and a half. In addition, you must pay income tax based on whatever bracket you fall into at the time.
If you’ve only worked in the United States for a short period of time, these fees may not mean much. If you’ve taken full advantage of the opportunities a 401(k) offers, however, you’re going to want to avoid these as much as possible.
This predicament leaves you with a few options to reduce the overall fees you’ll be responsible for paying:
- Leave the money where it is. By leaving the money in this account until you reach the appropriate age, you allow it to quietly gain interest without the risk of fees. Just remember not to leave this money on the table when the opportunity strikes to withdraw it!
- Wait a year. By waiting until your time in the United States workforce has officially passed, you can avoid paying the additional income fees. Technically, your new income of zero US dollars places you in the lowest taxable bracket. While you’ll still have the early withdrawal fee, it may sting less without those extra taxes.
Taxes in Your Home Country
Here is where things can get especially tricky. Depending on your country of origin, you may be responsible for paying an additional set of taxes on the money you’ve earned in the United States. The individual policies depend entirely on the laws of your home country.
If you’re feeling slightly overwhelmed right now, you aren’t alone. This isn’t time to worry! There are hundreds of resources available online to help you figure out the rules of your individual country, including blogs and youtube videos.
The best, most affordable course of action will be to find others in the same situation and learn from their past mistakes.
Watch this video to learn more about the best strategies for planning your 401(k) as an H-1B visa holder:
Suppose you still have questions or concerns about how to avoid breaking the tax regulations regarding your 401(k) investment. In that case, you may find it beneficial to seek out a trusted financial advisor. The money they require upfront could be well worth the worry you can avoid through their help.
Author’s Recommendations: Top Trading and Investment Resources To Consider
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Conclusion
If you plan on staying in the US for the full six years of your H-1B visa, a 401(k) investment plan is a great way to save on income tax, grow your retirement savings, and enjoy additional benefits, such as company matching.
When returning to your home country, remember that there’s no immediate need to take out all the money you’ve invested into this account. The longer you wait to transfer it, the more likely you can avoid hefty fees and penalties. Always feel free to seek guidance from professionals when deciding how to handle your money best.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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