Learn to prepare tasty,quality south indian, north indian, vegeterian,non-vegeterian,thai,tiffin,idli,dosa,vada,sambar.
Can we max out 401k while on an H1-B visa?
The common question among financial enthusiasts who choose to save each and every penny from day 1 is going to be should I max out my 401K while I am on H1-B visa? H1-B visa is the employer sponsored visa and 401K is employer sponsored plan. Most of the employers offer this option if not we can choose to save in IRA either traditional IRA (or) Roth IRA on an independent basis. The amount that can be saved depends on the annual limit set by IRS every year as well as your income limit. This question can be tackled in many different ways. Here are some scenarios that will suit your profile and decide accordingly
1) 401K return on investment and tax savings offers better return compared to other investments It is to be noted that H1-B visa is a temporary visa that does not guarantee permanent settlement until you get to the point of receiving your green card. With movement of green card priority dates not so green it would be always better to do simple math. It is to be noted that once you lose your visa status and happen to return back to your homeland you can transfer your 401K balance onto an IRA account and retain it until you reach retirement age
2) 401K return on investment - 401K is an employer sponsored tax saving instrument. You can open a solo 401K which happens to be associated with self-employment that is not possible in H1-B visa. IRA is something you can open on your own and your spouses name that can help you save total amount set by IRS per annum depending on your AGI (Adjusted gross income) and many different factors. The 401K funds can be invested into very safe instruments equivalent to that of CD's, bonds as well as moderate to high risk stock funds. Depending on who maintains your funds the fund fee needs to be taken into consideration. This is deducted every year. In case of IRA again IRA Cd's as well as funds can be chosen for investment purpose. The amount earned as return grows tax free. You can opt to switch the funds within your portfolio and you will not incur any penalty unless you withdraw the money
3) Employer match - Most of the employers match your 401K contribution. This is a free money that you don't want to lose
4) Both spouse can contribute towards 401K and IRA - If both of you are working and have employer sponsored program both of you can contribute annual maximum, get employer match. If one of you is working still other person can invest in IRA (even in case of homemaker) provided your AGI is within limits. Check with your tax professional on this
5) Early withdrawal penalty - Only point to note is that if you choose to withdraw before retirement age there is a early withdrawal penalty fees which is huge
Is there a way to avoid early withdrawal penalty and access full funds with returns ?
There is a hack called traditional IRA to Roth IRA conversion ladder that lets you access the funds in about 5 years timeframe. This comes with the advantage of paying lesser tax amount towards amount withdrawn. I'll explain that in detail in one of the coming posts. Stay tuned