401k Investment!!! Is it Good thing for guys planning to to go back Homecountry

[qwertyisback]

Hi
In general I am very sure that 401K is good planning for retirement savings. Agreed. Guys/Gals Plans to settle in US must be contributing 401K, If not start doing it ASAP.
But what about members who are planning to not to settle in US and return back to their homecountry after few yrs??? Are you making 401K contributions?? Do they get 401K money easily(before retirement age) at time of going back?? Share your thoughts and vote.(You can choose multiple options if applicable/desired)

 

[TheRealCanadian]

Do they get 401K money easily(before retirement age) at time of going back??

From a taxation perspective, the 401K's benefits are mainly determined by wether your home country treats the gains within the plan as tax-deferred like the US does. The Canada-US tax treaty does this, but other countries' tax regimes may not.

From an early withdrawal perspective, 401K withdrawals before the age of 59 and a half are treated at the standard tax rate (which as a non-resident would be around 20-30%) plus an additional 10% penalty. Your home country may also treat this as income, and levy its own taxes.

 

[qwertyisback]

From a taxation perspective, the 401K's benefits are mainly determined by wether your home country treats the gains within the plan as tax-deferred like the US does. The Canada-US tax treaty does this, but other countries' tax regimes may not.

From an early withdrawal perspective, 401K withdrawals before the age of 59 and a half are treated at the standard tax rate (which as a non-resident would be around 20-30%) plus an additional 10% penalty. Your home country may also treat this as income, and levy its own taxes.

For India, it should be treated as NRE and should be tax free.(As long as members fits in criteria of NRE).

All GC holders should files taxes as resident regardless they stay in US or not.... RIGHT?? Then GC holders should not be paying non-resident taxes but standard tax.

 

[TheRealCanadian]

All GC holders should files taxes as resident regardless they stay in US or not.... RIGHT??

Correct. I assumed based on your original post where you stated ...who are not planning to settle in US and return back to their home country that you were referring to abandonment of permanent residency. In such a scenario then yes, you would pay NR rates.

Then GC holders should not be paying non-resident taxes but standard tax.

The resident rates would be higher, then, as you're paying on worldwide income and the 401K would be taxed at your marginal rate, so around 26%, plus the 10% early withdrawal penalty. So you'd be losing 36% or so right off the bat. I'd at least let the money accumulate until you turn 60 to eliminate the 10% penalty.

 

[qwertyisback]

The resident rates would be higher.

I beleive non resident rates are higher. And standard deduction not applicable to Non-resident.

Also I assume, GC holders returning back, will like to take 401k rightaway with them. Unless if keeping that money few more years and filing as non-resident gives any more tax advantage(as TRC suggested). But I think non-resident pays more tax.

 

[TheRealCanadian]

I beleive non resident rates are higher. And standard deduction not applicable to Non-resident.

The correct answer is that "it depends". While the standard deduction is not available to you as a non-resident, you can itemize and most importantly you are not declaring or paying taxes on your worldwide income. If you cash it out before you leave, you may be in a situation where you have a fair amount of income for the year - as well as being resident in a state which will ensure that someone (not you) gets another 6% or so.

I did some looking, and the standard non-resident witholding rate is 30%, but that's just witholding. You should be able to file a 1040NR to get some of that back.

 

[qwertyisback]

The correct answer is that "it depends". While the standard deduction is not available to you as a non-resident, you can itemize and most importantly you are not declaring or paying taxes on your worldwide income. If you cash it out before you leave, you may be in a situation where you have a fair amount of income for the year - as well as being resident in a state which will ensure that someone (not you) gets another 6% or so.

I did some looking, and the standard non-resident witholding rate is 30%, but that's just witholding. You should be able to file a 1040NR to get some of that back.

Filing NR will be a bad idea, as taxes will be more regardless of anything. So I would imagine, GC holders can keep their GC with reentry permit and file taxes as resident. Also they can take 401K withdrawl over few years so that they pay less taxes (though they have to pay penalty 10%). But does 401k allow such distribution for over few years?? I am not sure about it!!! does anybody know anything about 401k distribution rules?? Do they pay as will of contributor (ofcourse with penalty 10% and taxes)???

 

[TheRealCanadian]

Filing NR will be a bad idea, as taxes will be more regardless of anything.

Again, that may or may not be correct. Remember, if you're filing as a resident, you may need to claim residence in a state. At that point, if you're in the 28% bracket and kicking in another 6% to the state, you're above the 30% and paying more - 34%. Plus another 10% penalty, and half your money is gone.

But does 401k allow such distribution for over few years?

That's subject to the rules of your employer's plan. However, you should be able to roll it into an IRA, from which you can disburse as you please.

 

[qwertyisback]

Again, that may or may not be correct. Remember, if you're filing as a resident, you may need to claim residence in a state. At that point, if you're in the 28% bracket and kicking in another 6% to the state, you're above the 30% and paying more - 34%. Plus another 10% penalty, and half your money is gone.

I have to file my taxes as NR on 1st year on H1 and still I paid state tax. So it means NR pays state tax. RIGHT?? and considering no deductions allowed for NR type, they will always end up in paying more than resident.

What is "roll it into an IRA"?? Is this some account that we have to open?? and where??

 

[TheRealCanadian]

I have to file my taxes as NR on 1st year on H1 and still I paid state tax. So it means NR pays state tax. RIGHT??

Not necessarily. Each state is free to make its own rules regarding who qualifies as a resident, and what income is taxed or untaxed.

Your first "dual-status" year is a strange one, since you were forbidden from filing a resident federal tax return, even though you were clearly a US resident. Your state saw you as a resident, since by their rules (having a residence and a job in the state) you clearly qualified, hence they taxed you.

Now, if you were a "true" non-resident in the literal sense of the word, you would not be resident in any state, or have any employment income from any US state, therefore you would not be subject to state taxation. However, if you do claim to be a US resident, you will need to claim a state to reside in. While you could try and claim something like Florida or Texas with no income tax, you'll need to subtantiate that claim of residence.

Taxation rules are even more complicated than immigration rules, and that's before you throw in international taxation and tax treaties. As a Canadian citizen, I and my spouse are entitled to always file a full, resident 1040 even if we weren't permanent residents, and even if we never spend a single day in the US, due to the non-discrimination provisions of the US/Canada tax treaty that allow us to invoke a provision of the US/Germany tax treaty that gives Germans the right to file a full 1040. Make sense? I didn't think so.

and considering no deductions allowed for NR type, they will always end up in paying more than resident.

Not necessarily.

What is "roll it into an IRA"?? Is this some account that we have to open?? and where??

An IRA is an Individual Retirement Account. You can google it, or get a book on personal finance. Well worth it, for everyone here.

 

[qwertyisback]

However, if you do claim to be a US resident, you will need to claim a state to reside in. While you could try and claim something like Florida or Texas with no income tax, you'll need to subtantiate that claim of residence.

So GC holders who takes reentry permit and stays out of US for 2 yrs, will not have any residence in US. But as they have to file as resident, they pay state tax???? Which state tax they will pay?? their last state?? This sounds pretty bizzare

 

[TheRealCanadian]

So GC holders who takes reentry permit and stays out of US for 2 yrs, will not have any residence in US. But as they have to file as resident, they pay state tax???? Which state tax they will pay?? their last state?? This sounds pretty bizzare

Of course it's bizzare. No more bizzare than you being a resident your first year here, but filing as non-resident, or not being a resident and filing as one. This is the tax code. If you wanted common sense you should have looked somewhere else.

 

[Magician]

So GC holders who takes reentry permit and stays out of US for 2 yrs, will not have any residence in US. But as they have to file as resident, they pay state tax???? Which state tax they will pay?? their last state?? This sounds pretty bizzare

I think if person gets DUAL CITIZENSHIP its easy to maintain 401K account and get good benefits....

What happens to 401K account if person loses his GC status by the time he turns 60... Can he still withdraw that money?? If Yes, anyone knows the procedure??

Thanks

 

[TheRealCanadian]

What happens to 401K account if person loses his GC status by the time he turns 60... Can he still withdraw that money??

Of course. It's your money. 401K participation or withdrawals have nothing whatsoever to do with immigration or citizenship. status

 

[AmericanWannabe]

Of course. It's your money. 401K participation or withdrawals have nothing whatsoever to do with immigration or citizenship. status

When I was on F-1, I tried to open a IRA account. The bank
said I had to be a citizen or US resident.

 

[qwertyisback]

Any 401k or Tax Gurus???

Any Tax Guru's
How 401K distribution works after leaving country and possibly not in any immigration status??(magician q/s)
How is Resident/NonResident Tax returns defers?? Which is more beneficial from 401K/IRA distribution point of view??
Whats best way to take 401K distribution after/while leaving US?? Take it one time or over years?? And which type of return (R/NR) will save more in Taxes)??

Hipka/kapsy
Why you don't contribute to 401K??


Start chipping and throw your thoughts

 

[TheRealCanadian]

When I was on F-1, I tried to open a IRA account. The bank said I had to be a citizen or US resident.

Point taken. The exception to my above statement is that if you are in an immigration status that explicitly forbids you from declaring US tax residency (like F J or M), then you cannot open up an IRA or 401k. Beyond that, however, if you're a tax resident you can open one up, wether a non-immigrant, immigrant or citizen.

From a savings perspective, it's a no-brainer. You deduct a few percent before taxes, the employer might match, and before you know it 3 years have passed and you have $15,000 in an account.

 

[AmericanWannabe]

Any Tax Guru's
How 401K distribution works after leaving country and possibly not in any immigration status??(magician q/s)
How is Resident/NonResident Tax returns defers?? Which is more beneficial from 401K/IRA distribution point of view??
Whats best way to take 401K distribution after/while leaving US?? Take it one time or over years?? And which type of return (R/NR) will save more in Taxes)??

Hipka/kapsy
Why you don't contribute to 401K??


Start chipping and throw your thoughts

If you abandon GC and leave US, then you file Tax as non-resident.
and you only report US income. Your 401K distribution
is conisdered your US income that tax year.

You can deduct maybe only $2000 plus other amount specifiyed by tax treaty.
So you can withdraw your 401K each year by amount smaller than
deduction amount so that you do not have to pay any taxes.
But you have to pay penealty if withdrawal is premature

 

[AmericanWannabe]

Point taken. The exception to my above statement is that if you are in an immigration status that explicitly forbids you from declaring US tax residency (like F J or M), then you cannot open up an IRA or 401k. Beyond that, however, if you're a tax resident you can open one up, wether a non-immigrant, immigrant or citizen.

From a savings perspective, it's a no-brainer. You deduct a few percent before taxes, the employer might match, and before you know it 3 years have passed and you have $15,000 in an account.

I once applied for H1B visa but I already have 401K account.
I once worried 401K amount indicated by my W-2 and paystub
will lead to rejectionb of my visa due to immigration intent.

 

[AmericanWannabe]

From a savings perspective, it's a no-brainer. You deduct a few percent before taxes, the employer might match, and before you know it 3 years have passed and you have $15,000 in an account.

Yes. It may be even worth it even if you want to withdraw
prematurely with penealty. Your employer's match and
delayed tax payment may be bigger than penalty.