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njverifier
06-15-2012, 09:03 PM
Another topic that I wanted to bring up on this forum was 401K. This is another one which lot of people give different answers but none knows how it works. I would like to invite people to participate and educate one another.

1. What is 401k?
2. What are the rules and regulations around it?
3. How you can withdraw money from 401k
4. What are the implications of withdrawal?
5. Why should you contribute to 401k?
6. Why you should not contribute to 401k?

whiz
06-16-2012, 09:47 PM
Another topic that I wanted to bring up on this forum was 401K. This is another one which lot of people give different answers but none knows how it works. I would like to invite people to participate and educate one another.

1. What is 401k?
2. What are the rules and regulations around it?
3. How you can withdraw money from 401k
4. What are the implications of withdrawal?
5. Why should you contribute to 401k?
6. Why you should not contribute to 401k?

I know this is offtopic here but here is my take.

If the employer matches your 401k contribution, you should contribute. In generally most employers match 3-6% of your base, which means you will be getting 3-6% more of your base salary. Plus its a good safety net. In general, even if you get sued or go bankrupt, this is the component which others don't get their hands on.


If your employer does not match, then it all depends on a lot of things including your age and tax bracket.

gopalkrishan
06-18-2012, 12:24 PM
Another topic that I wanted to bring up on this forum was 401K. This is another one which lot of people give different answers but none knows how it works. I would like to invite people to participate and educate one another.

1. What is 401k?
This is a retirment account. You contribute money towards it out of paycheck and your employer may or may not contribute to your additions. The money you are contributing is deducted from your payroll before taxes, so there is a tax benefit also.

2. What are the rules and regulations around it?
I believe there are limitations to how much money PER YEAR you can contribute to your 410K account. I believe the limit is around $13000 or so for people filing tax return as single .. you can google and confirm this ..

3. How you can withdraw money from 401k
You are eligible for this money at age of 59.5 and if you withdraw before this then you are eligible for penalty becuase this money should have been taxed and is not. Some accounts allow you to take out loan against this account which you repay back (had interest whiuch you have to pay)

4. What are the implications of withdrawal?
5. Why should you contribute to 401k?
If you plan to stay in US contribute as it will give you supplemental income at retirement
6. Why you should not contribute to 401k?
If you are thinking of going back soon enough then don't :) You can still access money in this from India after you are 59.5 though :)


more details later..

thomachan72
06-18-2012, 12:45 PM
withdrawing even after 59.5 from out of the US (by a non-immigrant who left US, for example from India) I believe will automatically trigger a minimum 30% cut? If the fund is withdrawn by a US person (citizen/PR/resident) then it is ok. I heard this somewhere and not sure about this.

imh1b
08-15-2013, 07:00 AM
According to Wiki,
A 401(k) plan is the common name in the USA for the tax-qualified, defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Taxation Code. Under the plan, retirement savings contributions are provided (and sometimes proportionately matched) by an employer, deducted from the employee's paycheck before taxation (therefore tax-deferred until withdrawn during retirement), and limited to a maximum annual contribution of $17,500 (as of 2013)..
Anyone please explain this phrase, because I didn't get the meaning.

Are you a spammer?

Anyone can understand it. Even a monkey knows what it is. Which country are you posting from?

vaayu
09-27-2013, 01:05 PM
The question that I always have in mind is how many of us living in US are activley thinking abt retirement & 401k and how aggressively are they doign it. How much money is needed for you to retire is a big dynamic number and depends on who you're asking.,

krishmunn
09-27-2013, 01:21 PM
The question that I always have in mind is how many of us living in US are activley thinking abt retirement & 401k and how aggressively are they doign it. How much money is needed for you to retire is a big dynamic number and depends on who you're asking.,

I started my 401 when I joined an employer who matches up to 3% of my salary. It was free money . When I quit that employer, I moved the 401K nest to an IRA and started a new 401K in the new company (which also offered a match). But I put only the amount needed to get the match ... partly because I need cash for buying a house (planning shortly). If I have more money I will probably put a few grands more to IRA or 401.

My plan is to retire in India and live life kingsize with Social Security and whatever savings I can make :) Bought 2 properties in India. Can probably buy a third one before I retire

AceMan
09-27-2013, 01:32 PM
401K is pre-tax money. So what ever you earn after 59.5 years old attracts a tax. As Thomachan said if you had started at around 30 years old, you would have invested for about 30 years and the money would be substantial and would attract the highest income tax bracket.

Currently the limit is 17600 $ per year. If you are above 50 years you are allowed additional 5000 $ for catch up.

The other option is going for ROTH. It is post-tax money and hence tax free at the time of maturity. A point to be noted here you get tax exemption only for the money you put. The profits made by your investment will still be taxable at the prevailing rate.

So depending on individual needs you should be selecting the appropriate plan.

It would be wasting money if people avoid 401K, if they have corresponding matching

gchungry
09-27-2013, 02:53 PM
401K is pre-tax money. So what ever you earn after 59.5 years old attracts a tax. As Thomachan said if you had started at around 30 years old, you would have invested for about 30 years and the money would be substantial and would attract the highest income tax bracket.

Currently the limit is 17600 $ per year. If you are above 50 years you are allowed additional 5000 $ for catch up.

The other option is going for ROTH. It is post-tax money and hence tax free at the time of maturity. A point to be noted here you get tax exemption only for the money you put. The profits made by your investment will still be taxable at the prevailing rate.

So depending on individual needs you should be selecting the appropriate plan.

It would be wasting money if people avoid 401K, if they have corresponding matching

I think contributing to 401(k) is always a good idea. Even if you stay and retire in USA or thinking of going back to your home country. Whether your employer contributes or not. Here is my take. Let's say you started 401(k) from year 2010 and you maxed out your contribution 16K (if you can). You saved Fed Tax of approx 16-18% (assuming Gross is 80K to 90k). 16-18% is just a guessed number, not 100% sure. If you live in state where there is a state income tax than you saved x% state tax. Just for a calculation purposes, let's say you saved 25% of tax (both Fed + State Income Tax) on 16K = $4K. Same for Year 2011, 2012. Total Tax Saved $12K.
Now suddenly You need to go to your home country for good in 2013. NOW, your 401(k) account has $48K. from 2014, you start withdrawing $15K each year. Because you are not yet 59.5 years, you need to pay 10% panalty. That is $1.5K. Since for Year 2014, that's your only USA income, you need to pay 10% Fedral tax on that withdrawl - (Standar Deduction + Personal Exemption). for 2013, Personal Exemption is $3900 and standard deduction is $6100. You won't have State Income Tax because you are not earning in state anymore. So 10% Fed Tax on remaining $5K i.e. $500. Hence Total Penalty + Fed Tax = $2K. on $15K, it's 13.3% (Tax + Penalty). Still you saved atleast 12% tax overall. Keep on withrawing partial amount as needed regularly to reduce Fed Tax and you should be good.