401k...

G

good_desi

Member
Hi All,
I would greatly appreciate your replies on this non-board related issue. I have never utilized the 401k plan so far but I want to, now. My question is, if I go back to India for good, is withdrawing all the funds from the account easy? I know that it is subject to tax and penalty. I'm just not sure if they consider leaving the country as a valid reason.
Thanks!
 
You can withdraw your meony whenever you want. There will be penalty ( I guess 10%). That and Tax.
 
No reason is required

You need not justify your reason to close your 401k account its your money but the only thing is u have to pay fed tax + 10 % penalty thats about 30 % I guess.


so its your call basically ....hope it helps

SVSS
 
Re: No reason is required

Alternately, if you have substantial amount of money invested, you can maintain your account for the next 30 to 40 years and take out a huge amount of money when you finally retire. It may be possible to maintain your account from India; what with the Internet and all...

Originally posted by SVSS
You need not justify your reason to close your 401k account its your money but the only thing is u have to pay fed tax + 10 % penalty thats about 30 % I guess.


so its your call basically ....hope it helps

SVSS
Click to expand...
 
Re: Re: No reason is required

What WheresMahGreen says is correct.

I work for the largest 401K provider in US (no marks for guessing..) and few weeks back, I had attended one of their seminars, about Investing, etc. There I learnt that I can manage my 401K account remotely from India too, in case I move back.

FYI - I have still not started my 401K, but would do so in Dec/Jan '03 probably. Also I am an IT guy, but love Financials...

180daysguy

Originally posted by WheresMahGreen
Alternately, if you have substantial amount of money invested, you can maintain your account for the next 30 to 40 years and take out a huge amount of money when you finally retire. It may be possible to maintain your account from India; what with the Internet and all...
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I think you guys are missing something here ...

Contributions to the 401 K plan can be before tax and after tax.

If your contribution to the 401 K plan is before tax then if you make a early withdrawal then you have to pay the tax + the Penalty (10% ?).
However if your contributions are after tax, you would have already paid your taxes upfront and so the withdrawal penalty is all you have to pay.

If your contributions to the 401 K are tax deferred and you intend to withdraw it after your retirement, you still have to pay your tax amount but now you dont have to pay the penalty of 10% for early withdrwal.
 
401k

People who havent used the 401ks yet... please do so!

You are throwing away free money! The least you can put it is the one that matches ur employers contribution. ie. if its a 2:1 match upto 3%, you invest 6%. if 1:1 for 2%, you invest 4%... you get the picture!

401k minimum matching investment is a no brainer. You have wasted money so far so dont delay anymore.

for more info go to fool.com
 
Thought this might help:

The best part of 401(k) that I like is "LOAN". I'm not sure how many of you are aware of thsi but most 401K plans let you take loan against your 401k.

That means you are giving yourself a loan, so all interest goes back to your account. (a point to note is that your interest paid is taxed twice, i don't think a big deal).

There are limited scenarios for which you can take loan though.
 
Re: I think you guys are missing something here ...

401Ks are always pre-tax.

IRAs can be pre-tax or post-tax.

I am not a Finance Guru:)

Originally posted by GreenPatta
Contributions to the 401 K plan can be before tax and after tax.

If your contribution to the 401 K plan is before tax then if you make a early withdrawal then you have to pay the tax + the Penalty (10% ?).
However if your contributions are after tax, you would have already paid your taxes upfront and so the withdrawal penalty is all you have to pay.

If your contributions to the 401 K are tax deferred and you intend to withdraw it after your retirement, you still have to pay your tax amount but now you dont have to pay the penalty of 10% for early withdrwal.
Click to expand...
 
one solution

if you want to withdraw and not pay tax legally,

If you are in India
withdraw money every year which is less than joint limit (i think $7000) and file taxes from India. That way you don't owe money to IRS. But when you withdraw the money, the firm will be anyway holding the 10% penalty.
Thats's my 2 cents.
BTW I am not a CPA.
 
for people with GAI < 95K

for the few unfortunate people likw myself with annual salary less than 95K, I suggest the roth IRA. It is a good saving mechanism. You can put in upto $2000. After 5 years if you are buying ur first house, you can make withdraw with no penalties.
 
401k

401K has pre-tax and post-tax contributions with limits for pre-tax and post-tax contributions. On top of that most employers match (from .25 to 1 for each dollar) upto a specific percent or amount. This match has different vesting periods ranging from immediate to 5 years gradually. If your company matches, contribute at the least upto what they match (as it is free money). Also, you save some money on taxes (check fidelity.com and umpteen other financial sites to check net take home pay). Say if you took home $5000 monthly and started contributing $500, instead of $4500 your net take home would be something like $4650.

If you decide to leave US, you can keep the money in the 401K. But there are lower limits to keep it, usually $5000. If < $5000, the tax+penalty will be deducted and paid out. If more than that, you can leave it as is and maintain your funds from anywhere as long as you want. You can redistribute, maintain and take out money but cannot contribute to it.
If you took it out all in one go, tax(based on bracket)+ penalty.
If you took out in smaller increments (say $10K), probably lower tax bracket + penalty.
If you took out after the specified age limits, just tax based on bracket.

You can control it from anywhere, US, India, etc. unless in the future some new laws are passed which I don't see happen (as people abroad will then pull out all the money in the US in 401K in one go).
 
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Re: Re: I think you guys are missing something here ...

I dont agree with you on this one 180DaysGuy.

I make contributions to my 401 K plan and it is tax deferred. I am a 100% sure of this .... and yeah I am not a Finance Guru either :)


Originally posted by 180DaysGuy
401Ks are always pre-tax.

IRAs can be pre-tax or post-tax.

I am not a Finance Guru:)
Click to expand...
 
The Roth IRA limit is around 95k if you are single and around 150-160k if you are married. One more thing, you can contribute up to $3000 starting this year.

With a Roth IRA, you invest your after-tax money (no $ savings now) but any growth from that money is non-taxable. If (big *if*) you should invest in some high growth stock or mutual fund with that money, then none of the growth is taxable.

With a traditional IRA or 401k, you invest your money pre-tax (some immediate $ savings, assuming you qualify) but what ever that money grows into is taxed when you take it out. This may work out to be beneficial if you will be in a very low tax bracket when you turn 60. Obviously no taxes if your withdrawal + earnings is very small i.e. less than your exemptions+deductions (around 7k)

-- alaknanda
 
Re: I think you guys are missing something here ...

Your contribution is tax-deferred, which means you are not paying taxes on that money today, but will pay taxes when you withdraw the money.

After-tax would be if you paid tax on the money and then contributed to the retirement savings plan (Roth IRA is the only one that I know of for Salaried employees).

All 401ks are tax deferred (by definition, also pre-tax contributions).

btw, I am not a finance guru, but do make my living as a financial controller.

Originally posted by GreenPatta
I dont agree with you on this one 180DaysGuy.

I make contributions to my 401 K plan and it is tax deferred. I am a 100% sure of this .... and yeah I am not a Finance Guru either :)
Click to expand...
 
Thanks a lot, guys!

To be honest, I never expected such a huge response. I have couple more questions:
1. How does the employer calculate their contribution for our after-tax 401k contributions? For eg., If I contribute 6% of my after-tax pay, do they match 75%(say) of that 6% ? What about the tax on their contribution in this case when I withdraw?
2. So, when I want to close the account (withdraw everything) once for all, do they pay me total balance - tax - penalty?
Thanks!
 
Re: Thanks a lot, guys!

Originally posted by Desi Babu
To be honest, I never expected such a huge response. I have couple more questions:
1. How does the employer calculate their contribution for our after-tax 401k contributions? For eg., If I contribute 6% of my after-tax pay, do they match 75%(say) of that 6% ? What about the tax on their contribution in this case when I withdraw?
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Well, that depends on your company's policy for matching contributions. For instance, while my company matches pre-tax contributions upto 4% of pay, they don't match after-tax contributions. I'm not too sure about the tax consequences of your company's after-tax match. My guess is that it would be treated as imputed income and be subject to your regular income tax rates. I suspect company's really do this as it doesn't benefit their books very much.
In the case of a pre-tax contribution, if your company match is immediately vested, then you can withdraw all of it subject to appropriate tax and penalty. If your company match has a delayed vesting period, then you will either have to wait until you gain ownership over the entire amount or withdraw piecemeal, again, tax and penalty as applicable.
However, if your contributions are solely after-tax, then you can liquidate your account without any deferred tax consequences, provided you've been paying taxes on income (if any) from your portfolio. However, you still have to pay taxes on any capital appreciation resulting from the sale of your assets, unless your monies were held in a Roth-IRA account.
Frankly, the topic is too complicated and has various permutations/combinations to be discussed on this forum. I would suggest you read stuff about 401k, investing, IRAs (Roth included) etc to gain firsthand knowledge about them. If you still think you lack a certain degree of understanding for investment, then consult a financial planner and a tax advisor.


2. So, when I want to close the account (withdraw everything) once for all, do they pay me total balance - tax - penalty?
Thanks!
Click to expand...

Yup, that's it in a nutshell the size of a pimple in the dimple on the ass of an ant.
 
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Here is my view:

1. 401 K has a limit on the amount which you can put in.
2. If you withdraw, there is 10% penalty Applied First and then Tax on the remaining amount.
3. Tax will be the current tax bracket in which you are. This will be less, if you are not earning.
4. So, definitely you save on the tax front if you take the money when you are not having income.
5. You can manage your 401k from anywhere in the world.
6. You can take a loan of 50% of the value in 401K at any time. You have to pay the interest on that loan. The interest goes into your own 401K account.
7. Approximate average returns on investment per year is about 7%-8%. (which is not much).

Good Option if you are here in USA.. nearer to your money. Else .. better tuck your money in your pocket and go back to your home country where you ean enjoy it rather than look at it in numbers.. End of Story.

Addition:

St8 - You are correct.
- If you take the amount after retirement, there is no 10% penalty.
- Also forgot to mention - Employer can contribute matching dollars to your account. In this case it is recommended that you better match the maximum which the employer is offering.
- Employer can either choose a Mandatory employer contribution Plan or No mandatory employer contribution Plan.

I think with all the knowledge that has been posted on this forum, we ourself can start a 401K consulting firm :))
 
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change of job and 401K transfer

How does the transfer form one company's plan to another company's plan work ? If the new company does not have a plan at all then what to do ?
 
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