Investing while in the US on a fixed term contract
March 25, 2013 8:28 AM Subscribe
I know I should be talking to an financial planner/adviser about this, and I will do, but... I am British. I'm going to be living and working in the U.S. for somewhere between one and three years. I will probably return to the UK afterwards, but there is a chance I will stay in the U.S. forever. I would rate that chance at about 50/50. I would like to save a fraction of my income while in the U.S., and I would like those savings to grow. I would like to retain at least the possibility of suddenly withdrawing them if and when I leave the U.S. I understand there will be fees and taxes involved in such a withdrawal, but I would of course like to minimize them. And I would like to balance this possibility against the possibility that I will be staying forever, and should make a start on saving for retirement.
posted by caek to work & money (4 answers total) 4 users marked this as a favorite
My salary will be mid-five figures. Over three years I will probably be able to save around $10,000, so this is not a huge amount of money, but it's enough money to matter to me! As far as I can tell, my options are:
- Make voluntary contributions to the 401(k) offered by my employer.
- Invest post-tax income in a Roth IRA
- Invest post-tax income in a regular investment account, e.g. a cash savings account (do these have a name?) or just a regular purchase of a Vanguard-type index tracker (I can do that, right? I don't have to invest via an IRA or 401(k), right? What should I be Googling for this option?)
Presumably, if I knew I were staying in the U.S., this is easy: the 401(k) is the best option. But am I right in thinking that, if I leave the U.S., with these options:
- I can withdraw the entire 401(k) immediately, but I will have to pay income tax on the entire amount of the withdrawal + a 10% penalty
- I can withdraw the Roth IRA after a waiting ("seasoning"?) period of five years after the last contribution. I don't pay income tax on the principal, but I pay income tax on the growth, and I have to pay the 10% penalty.
- I can withdraw the regular savings/investments whenever I like. There are no penalties. Presumably I will pay income tax on the growth ("capital gains"?) at some point (annually, or at withdrawal?)
Have I got that right? And if so, how do I choose between these options? It seems like over a three year term the Roth IRA and and the 401(k) will work out about the same because the difference between compounding pre- and post-tax principal over such a short time will be small. But the 401(k) is easier/quicker to withdraw when my employment ends? Does the private, non-tax-sheltered savings/investment account even exist? Presumably that's the simplest of all?
(My employer will make contributions to a 401(k) after my second anniversary of employment (i.e. for the last year), but, unless I'm totally misreading the papework, the existence/size of those contributions in independent of the size of mine, so their contributions are not relevant. For the purposes of this decision, it's just free money that I can't do anything about.)