H1B visa holder with Green card is in process. How should I plan for my retirement

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nikitash
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H1B visa holder with Green card is in process. How should I plan for my retirement

Post by nikitash »

Hello,

I am a H1B visa holder with GC in progress but you never know what will happen and I have to go to my home country.
How should I plan my retirement? If I invest in in 401K and IRA, I do not know if I will be in US to get my returns back. If I keep my investment in my personal Vanguard brokerage account, I will end up in paying taxes every year.
Please advise.
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nikitash
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Am I going to be eligible for IRA tax deduction?

Post by nikitash »

[Post merged into here --admin LadyGeek]

Hello,

My annual gross income is 140K, if I invest in 401K and IRA with their limit, am I going to get Tax deduction for IRA?

Thank you
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by LadyGeek »

Welcome! In order to give appropriate advice, it's best to keep all the information in one spot. I merged your 2nd question into the first.

May I suggest you post your portfolio information in this thread using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.
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avidlearner
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by avidlearner »

I was in the same boat as you and my green card took 10+ years so at some point I guess you will have to take the jump and start investing in 401k. Also see this thread on how others in your boat are handling the same situation viewtopic.php?t=140400
Samosa22
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by Samosa22 »

I am afraid that the 2014 thread linked above is very light on relevant information. For example, there is no mention of tax treatment, which will be different if one leaves money in their 401k and withdraws in future while living outside of US (non-resident alien).

OP, you may find this blog helpful (I have no affiliation with the blog and I don't have any financial incentive whatsoever): https://myrawealth.com/insights/what-to ... me-country
Diversification is protection against ignorance - WB.
babystep
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by babystep »

I would continue 401k to the max and Roth Ira.

If you have to leave the country then you can withdraw from 401k over couple of years which will be very low tax rate. Even including the 10% penalty the tax cost will be very likely less than your current marginal tax rate (may be 24%?).

If you stay then 401k and Roth will serve the purpose.
bogledogle
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by bogledogle »

Yes, you should contribute to 401k and at your income level you should contribute maximum allowed if possible. If your employer contributes some amount, there is literally no downside for H1 holders and a lot of potential upside.

Firstly, even if you had to withdraw and leave the country next year, between the employer match and the tax deferral advantage, paying the 10% penalty would still leave you ahead.

I am going to assume your home country is India for the rest of this post. Correct me if I am wrong.

If you leave, India currently allows you to stay in NRI tax status for 3 years, ie: no taxes in India for bringing your money back from US even when you spread it out over 3 years (you pay taxes in US as necessary). Also, it seems India wants to provide an option to roll over 401k to a some new retirement account in the future - this is still TBD

Although, you should probably leave you 401k invested in the US because you will have direct access to the US market at extremely cheap cost compared to investments in india. Also, you will be hedging against inflation by parking your savings in USD.

RothIRAs are in the grey area because India does not recognize non taxable retirement accounts. Rules may change, but based on current rules, you will pay taxes on withdrawals in the future. Probably best to get the money out within 3 years of exit.


The immigration process is crazy and might take a decade or two to get A green card, but when it comes to investments, you should plan and invest like you are eventually going to get your GC if thats your plan.
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Re: Am I going to be eligible for IRA tax deduction?

Post by anoop »

nikitash wrote: Sun Apr 11, 2021 8:22 pm My annual gross income is 140K, if I invest in 401K and IRA with their limit, am I going to get Tax deduction for IRA?
It depends on your AGI and filing status.
https://www.irs.gov/retirement-plans/20 ... an-at-work
anoop
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by anoop »

nikitash wrote: Sun Apr 11, 2021 8:11 pm I am a H1B visa holder with GC in progress but you never know what will happen and I have to go to my home country.
How should I plan my retirement? If I invest in in 401K and IRA, I do not know if I will be in US to get my returns back. If I keep my investment in my personal Vanguard brokerage account, I will end up in paying taxes every year.
Please advise.
This is a tough one if you're on the fence about whether to remain in the US. If you think there's a greater probability of you remaining in the US, then I would suggest investing with the assumption that you will be here.

FWIW, if you buy and hold something like BRK-B, there will be no taxes till you sell.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by TedSwippet »

bogledogle wrote: Mon Apr 12, 2021 12:35 am Although, you should probably leave you 401k invested in the US because you will have direct access to the US market at extremely cheap cost compared to investments in india. Also, you will be hedging against inflation by parking your savings in USD.
I see two possible problems with this strategy.

The first is that very few countries have US estate tax treaties. And for a non-US citizen living in one of those countries, US estate taxes begin at just $60,000 of assets (compare to the $11mm or so for US citizens), and apply to all "US situs" assets, a category that apparently includes 401k and IRA wrapper accounts. This could represent a significant risk to assets. Moreover, it's not something that can be solved by gifting assets.

The second is that holding accounts in the US does not necessarily hedge non-USD inflation. What will matter here is what assets you hold in the account, not where the account is located. To take an extreme example, if you held only VXUS in an account, you would have effectively no exposure whatsoever to the US. Your assets may be measured in USD, but their returns are in no way at all tied to the USD.
nikitash wrote: Sun Apr 11, 2021 8:11 pm I am a H1B visa holder with GC in progress but you never know what will happen and I have to go to my home country.
A few sections of the wiki touch on this. It's a tricky area though, not least because there are 190 or so non-US countries, and US tax rules intersect poorly (if at all) with all of them. Mostly some points for consideration rather than hard answers:

- Non-US investor's guide to navigating US tax traps - Bogleheads
- US tax pitfalls for a non-US person moving to the US - Bogleheads
- Nonresident alien taxation - Bogleheads
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by bogledogle »

TedSwippet wrote: Mon Apr 12, 2021 4:20 am The first is that very few countries have US estate tax treaties. And for a non-US citizen living in one of those countries, US estate taxes begin at just $60,000 of assets (compare to the $11mm or so for US citizens), and apply to all "US situs" assets, a category that apparently includes 401k and IRA wrapper accounts. This could represent a significant risk to assets. Moreover, it's not something that can be solved by gifting assets.
Yes, this is true. But W2 salaried folks who are stuck on work visas in the green card queue limbo don't seem to have better options. The uncertainty around immigration process for some countries, ability to get a green card and potentially US citizenship is the core of the problem. If you know that you are going back to home country in a few years or shall remain in the US and become a citizen, you can plan for it accordingly. If you don't know or things don't work out the way you planned, then you are screwed if you pick the wrong strategy :D

While working on a Visa, you are a US resident for tax purposes and you pay taxes on global income. If you don't invest in a tax-deferred account, you will pay taxes and never be able to get that deferred space and the protections that come with it.

I'd be curious to hear if there is an interesting strategy for folks who spend 15 yrs in USA expecting a green card/citizenship, but need to return to home country due to a surprise change.

I need to read through the wiki again, seems like there is a lot of new content there :sharebeer
TedSwippet wrote: Mon Apr 12, 2021 4:20 am The second is that holding accounts in the US does not necessarily hedge non-USD inflation. What will matter here is what assets you hold in the account, not where the account is located.
Yes, I thought this was obvious :D
pasadena
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by pasadena »

As an H1B holder, and a future GC holder, you are a resident alien for tax purposes. You get the same tax advantages that US citizens do, as long as you remain so.

By default, and in the majority of cases, I would say that both pre-tax 401(k) and Roth IRA contributions (either regular or backdoor, depending on your income) are a good idea.

That said, some individual circumstances may change the answer. Mostly, how long are you planning on staying in the US - assuming you get your GC? Will you retire in your home country, and how far in the future is that? What is your home country and what does the tax treaty between it and the US say about retirement accounts?
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by Thesaints »

One thing I don't understand is, let's assume the OP is unlucky and at some point has to leave the US, his 403b balance will still be there, easily accessible, even from overseas.
What is the problem ?
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by TedSwippet »

bogledogle wrote: Mon Apr 12, 2021 12:57 pm
TedSwippet wrote: Mon Apr 12, 2021 4:20 am The first is that very few countries have US estate tax treaties. And for a non-US citizen living in one of those countries, US estate taxes begin at just $60,000 of assets (compare to the $11mm or so for US citizens), and apply to all "US situs" assets, a category that apparently includes 401k and IRA wrapper accounts. This could represent a significant risk to assets. Moreover, it's not something that can be solved by gifting assets.
Yes, this is true. But W2 salaried folks who are stuck on work visas in the green card queue limbo don't seem to have better options. The uncertainty around immigration process for some countries, ability to get a green card and potentially US citizenship is the core of the problem. If you know that you are going back to home country in a few years or shall remain in the US and become a citizen, you can plan for it accordingly. If you don't know or things don't work out the way you planned, then you are screwed if you pick the wrong strategy :D

While working on a Visa, you are a US resident for tax purposes and you pay taxes on global income. If you don't invest in a tax-deferred account, you will pay taxes and never be able to get that deferred space and the protections that come with it.
All very true. In my case, I actually had a green card, but decided to drop it to protect my retirement savings when the US introduced its appalling 'exit tax'.

If you can somehow find the probability of staying/leaving, you could I suppose split your options that way. For example, a 40% chance of retiring in the US means going 40% of 'all in' on 401ks and IRAs. But that's a difficult/impossible thing to estimate, and doesn't account at all for 'black swans' such as a surprise introduction of a new treaty-breaking and potentially retirement-destroying US tax (the 'exit tax').
bogledogle wrote: Mon Apr 12, 2021 12:57 pm I'd be curious to hear if there is an interesting strategy for folks who spend 15 yrs in USA expecting a green card/citizenship, but need to return to home country due to a surprise change.
If there is one, I have yet to find it. :-(

A Roth, or perhaps a Roth conversion before leaving, is one potential least-worst option. Given enough time, it at least gets round any 10% early withdrawal penalty. And if timed right, it could also sidestep any state tax. But for it to work best relies on the other country not taxing Roths, and few tax treaties cover Roths well. And that still leaves the spectre of US estate tax. Potentially mitigated with insurance, but that will become increasingly expensive to obtain with the twin 'disadvantages' of getting older and a growing IRA or 401k balance.

For what it's worth, I moved to a country with a good US estate tax treaty and a good US income tax treaty, putting me in a decent position when it comes to holding on to my IRA and 401k. And I have held on to them.

Yet for all that, even I feel uneasy relying on them. I am permanently one (more) bad US tax law or regulation away from finding them hard(er) to access. It is not difficult to imagine a future in which an "enhanced" FATCA or some such anti-money laundering regulation creates a set of withdrawal requirements that cannot realistically be satisfied (for example, try obtaining a Medallion Signature Guarantee from outside the US; virtually impossible). Add broker restrictions for non-US residents, and you can see how keeping these accounts in the US could well be worse than taking them with you when you go. Cross-border pensions are a bit of a nightmare anyway, but doubly so when the US is on one end or the other.
bogledogle wrote: Mon Apr 12, 2021 12:57 pm I need to read through the wiki again, seems like there is a lot of new content there.
I probably wrote a fair bit of it, so if you have any corrections or additions I'd be happy to add them. The whole area is fraught with problems, and I have found it broadly impossible to offer much in the way of concrete solutions to them.
bogledogle wrote: Mon Apr 12, 2021 12:57 pm
TedSwippet wrote: Mon Apr 12, 2021 4:20 am The second is that holding accounts in the US does not necessarily hedge non-USD inflation. What will matter here is what assets you hold in the account, not where the account is located.
Yes, I thought this was obvious.
It didn't look so to me. Sorry if I missed some nuance here.
Last edited by TedSwippet on Mon Apr 12, 2021 3:02 pm, edited 3 times in total.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by TedSwippet »

Thesaints wrote: Mon Apr 12, 2021 1:06 pm One thing I don't understand is, let's assume the OP is unlucky and at some point has to leave the US, his 403b balance will still be there, easily accessible, even from overseas.
What is the problem ?
The problem is that when you leave the US, you transition from US resident to US nonresident alien. And the US tax rules for US assets held by nonresident aliens are very different from those for US residents.

Specifically, they are often worse -- higher tax rates (general 30% flat rate on income) and lower allowances (no standard deduction on income, and a mere $60,000 estate tax exemption, compared to $11mm or so for US residents and US citizens).

Added to which, the country of residence might well not recognise a US 403b, 401k, IRA and so on as tax-deferred at all, leading to local tax hassles as well as potential US ones.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by Thesaints »

TedSwippet wrote: Mon Apr 12, 2021 1:40 pm
Thesaints wrote: Mon Apr 12, 2021 1:06 pm One thing I don't understand is, let's assume the OP is unlucky and at some point has to leave the US, his 403b balance will still be there, easily accessible, even from overseas.
What is the problem ?
The problem is that when you leave the US, you transition from US resident to US nonresident alien. And the US tax rules for US assets held by nonresident aliens are very different from those for US residents.

Specifically, they are often worse -- higher tax rates (general 30% flat rate on income) and lower allowances (no standard deduction on income, and a mere $60,000 estate tax exemption, compared to $11mm or so for US residents and US citizens).

Added to which, the country of residence might well not recognise a US 403b, 401k, IRA and so on as tax-deferred at all, leading to local tax hassles as well as potential US ones.
Thank you. But are 401k withdrawals "non effectively connected" on the 104NR ? They are taxed as earned income and are indeed nothing else than deferred compensation.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by TedSwippet »

Thesaints wrote: Mon Apr 12, 2021 2:14 pm Thank you. But are 401k withdrawals "non effectively connected" on the 104NR ? They are taxed as earned income and are indeed nothing else than deferred compensation.
It is not that simple. Absent any treaty coverage, the contribution element of a withdrawal is taxed at graduated ECI rates, but the gains element falls into the 30% flat tax nonresident alien category. Fully laid out in this article:

IRA Distributions for Noncovered Expatriates - Hodgen PC

For all but the simplest case, even finding the numbers to make this split could be impossible. Imagine an IRA that is decades old and is the result of several rollovers and merging with other plans.

A good US income tax tax treaty will modify this (and since India is mentioned upthread, it might or might not have such a treaty -- haven't checked). Treaties often reserve sole taxing rights to the country of residence, in which case US tax complications entirely disappear. But without a treaty, the US tax treatment on pension withdrawals is going to be worse for a nonresident alien than it would be for a US resident or US citizen.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by Samosa22 »

TedSwippet wrote: Mon Apr 12, 2021 2:55 pm ...
For all but the simplest case, even finding the numbers to make this split could be impossible. Imagine an IRA that is decades old and is the result of several rollovers and merging with other plans.
..
Shouldn't this problem be solved by keeping good records of yearly filed tax returns?
Diversification is protection against ignorance - WB.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by bogledogle »

TedSwippet wrote: Mon Apr 12, 2021 1:21 pm All very true. In my case, I actually had a green card, but decided to drop it to protect my retirement savings when the US introduced its appalling 'exit tax'.
Did you end up dropping your GC before the exit taxes kicked in?
Yet for all that, even I feel uneasy relying on them. I am permanently one (more) bad US tax law or regulation away from finding them hard(er) to access. It is not difficult to imagine a future in which an "enhanced" FATCA or some such anti-money laundering regulation creates a set of withdrawal requirements that cannot realistically be satisfied (for example, try obtaining a Medallion Signature Guarantee from outside the US; virtually impossible). Add broker restrictions for non-US residents, and you can see how keeping these accounts in the US could well be worse than taking them with you when you go. Cross-border pensions are a bit of a nightmare anyway, but doubly so when the US is on one end or the other.
Very true. The painful part is that we have no control over it so we are at the mercy of changing laws.
I probably wrote a fair bit of it, so if you have any corrections or additions I'd be happy to add them. The whole area is fraught with problems, and I have found it broadly impossible to offer much in the way of concrete solutions to them.
Yes, I know, thanks for the work. I have read through it in the past. It is impossible to put all the info together. Perhaps if I can figure out all the info for my home country, I can contribute country based guide once day.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by TedSwippet »

bogledogle wrote: Mon Apr 12, 2021 10:08 pm
TedSwippet wrote: Mon Apr 12, 2021 1:21 pm All very true. In my case, I actually had a green card, but decided to drop it to protect my retirement savings when the US introduced its appalling 'exit tax'.
Did you end up dropping your GC before the exit taxes kicked in?
Yes. I was already above the thresholds for 'covered expat' in 2008 -- long-term green card holder with decent retirement savings. I saw it coming, so made plans to immediately move out of the US. I got out a month before it passed. Had I not done so, I would have been instantly caught; no 'grandfathering in'.

This is a true 'black swan'. I saved fully for more than a decade into my IRA, secure in the knowledge that if I stayed in the US I would face normal US tax on withdrawals, and if I returned to the UK I would face normal UK tax on withdrawals (under the treaty), so broadly neutral either way. Then at the stroke of a pen the US altered the deal with a new and arguably treaty-breaking tax that would -- had I not gone before it passed -- have made returning to the UK the much worse option.
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Re: H1B visa holder with Green card is in process. How should I plan for my retirement

Post by wineandplaya »

I think the answer to the original question is entirety dependent on which country OP is returning to. For most European countries, traditional 401(k) should be a very good deal since you get the tax benefit now and those countries will honor the tax-deferral. For many other countries, you want to be able to liquidate all US-based assets when you move. Roth might be a very good deal or a very bad deal depending on circumstances (age at expatriation, tax treatment in country of residence).

One thing I haven't seen mentioned is 457(b) plans offered by universities and other governmental institutions. If there is a risk that you need to withdraw the whole balance upon expatriation, a 457(b) could be attractive since you avoid the 10 % early withdrawal penalty.
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