Will I be penniless when I'm 80?

January 4, 2006 11:04 AM

How can I start saving for retirement when my career will likely take me from the USA to New Zealand? I wish to benefit from the tax-free nature of a saving scheme like the 401k plans, but I do not expect to spend all that much of my career (or lifetime) in the USA. Is there any way to move 401k savings to a similar scheme in New Zealand without losing it all to the tax penalties for early withdrawal? Are there any cunning alternatives?

Am I being silly in not just starting a 401k anyway, and if/when I move to New Zealand, leaving it idle for a few decades? What are the risks of doing this, considering I would not be able to keep an eye on the account, and would probably not keep up with who or what was managing it over the decades?

What kind of retirement schemes are offered in New Zealand these days? What should I look into?

Is there any way to send US earned money US-tax-free to a NZ-tax-free retirement saving scheme?

I fear that by starting a 401k, I could be setting myself up to botch the investment (or even lose) what ever I save over the next few years.

I fear that by trying to save on my own, I’m shooting myself in the foot by losing a third of the savings to income taxes.

I fear that if the paperwork is very much of a hassle, I’ll keep putting it off until another day, and end up never doing it. How do you keep it simple, bulletproof, and foolproof?

I am ~30, and a NZ citizen, not a US citizen. I have not saved very much so far in my life, but am in a good position to do so.

Piggyback question: Is the part of my income paid to social security a complete and obvious write-off? (As in, even more of a write-off than someone who would actually accumulate the full points over their working lifetime and retire in the USA, neither of which I'm likely to do)

posted by -harlequin- to work & money (11 comments total)

My 401(k) is managed entirely online. (And it doesn't really take any active "management" to begin with.) I can't think of anything I can do with it now that I couldn't or wouldn't do from abroad.
posted by mbrubeck at 11:15 AM on January 4, 2006

This page has information on Social Security for non-citizens and non-residents. In particular, see Can a non-citizen receive Social Security benefits? and If I leave the US, can I continue to receive benefits?

New Zealand does not appear to be on the list of countries with reciprocal arrangements, which (I think) means that you will not receive Social Security benefits after you leave the US.
posted by mbrubeck at 11:23 AM on January 4, 2006

I'm not an investment advisor, so this information should be double-checked with a professional. That said...

If you start a 401(k) here, even if you don't put much in it, you can collect it at retirement wherever in the world you happen to live at the time, so that's not a bad idea. However, I do not believe you can contribute to a 401(k) using wages earned from a non-US job. I'm not sure about the rollover rules, but I'd be surprised if you could roll a US retirement fund into a NZ one without a pretty big tax hit on one end or the other. Again, check with a professional.

Your best bet may be to start an IRA of some sort - either Roth or normal, depending on your circumstances. Set up an automatic withdrawal from your checking/savings account, and if you can afford it, contribute the max ($4,000 in 2006); do this for several years and you'll be in good shape come retirement.
posted by pdb at 11:27 AM on January 4, 2006

I fear that by trying to save on my own, I’m shooting myself in the foot by losing a third of the savings to income taxes.

You'll lose more if you don't contribute at all. All indications are that the biggest factor in effective retirement savings isn't short or medium-term quality of investment but a pattern of contribution, year after year.

You'll have to read the code more carefully than I have, but I'm unaware of any restrictions on where you are when you withdraw, only your age. So if you start a 401k and don't withdraw from it till you're of retirement age odds are you should be fine no matter where you are in the world. Your location might preclude you from transfering the funds somewhere else but you should be able to leave them alone till retirement.

If you leave this job and need to clear out that 401k you should be able to make a no-penalty transfer to a Vanguard fund, subject to co-mingling restrictions. Initial disclosure forms should indicate the minimum balance, if any, to keep the fund open after you leave that employment.
posted by phearlez at 11:46 AM on January 4, 2006

This has come up in places I worked in the States, and I was told by benefit advisors "just leave the money in the 401k until retirement age or roll it into an IRA and similarly leave it there".

This was never a wholy satisfactory answer to me, because we want our cash where we are, don't we? And being a suspicious sort of a gal I've always felt that they might change the rules about taking the cash out of the country in the decades before I retire.
posted by jamesonandwater at 12:09 PM on January 4, 2006

I emailed my accountant with this very question a few hours ago. Specifically asking if there was a standard answer for each country, or if I should be consulting with accountants in the potential destination countries.

I'll post his reply upon receipt (which will probably be tomorrow, given the hour and the fact that he is based in New York City).
posted by I Love Tacos at 2:06 PM on January 4, 2006

What kind of retirement schemes are offered in New Zealand these days? What should I look into?

So-called superannuation funds are available through financial institutions, brokers, and advisors. Some are available through your employer, who may make contributions as part of your compensation.

Super funds are basically mutual funds with mixed investment portfolios in equities, bonds and cash. If you earn enough to be in the highest marginal income tax bracket (income over $60k pa is taxed at 39 cents in the dollar) there is a tax advantage to super funds, which taxed at only 33%.

You may find Sorted interesting. (Lots of calculators, savings and retirement info for New Zealanders).

And then there's national superannuation, which may still be paying out something worthwhile when you and I are 65. But that's a fixed amount and you can't contribute extra to it.
posted by i_am_joe's_spleen at 2:20 PM on January 4, 2006

Specifically, see here.
posted by i_am_joe's_spleen at 2:21 PM on January 4, 2006

I've always felt that they might change the rules about taking the cash out of the country in the decades before I retire

Unless they completely shut down currency flows, which seems very unlikely, that would be nigh on impossible to enforce. You could just take your 401K proceeds and buy treasury bonds, and then sell those on the international market. Or buy a house, sell it, and send the proceeds of the house to NZ. Or buy an annuity and sell it to someone.

Is the part of my income paid to social security a complete and obvious write-off?

If you were a citizen. So if you have a green card now, or find yourself in a position to get one (ie, marriage to a US citizen), that would be a concrete reason to take US citizenship when it's available. If one can believe wikipedia, NZ won't care, and the only real downside (apart from maybe embarrassment) is that the US would want you to file tax forms even after you move back to NZ (but not pay US taxes unless you're making a pretty good pile o' cash).
posted by ROU_Xenophobe at 2:56 PM on January 4, 2006

This was never a wholy satisfactory answer to me, because we want our cash where we are, don't we?

If you're invested in anything at all, your cash is probably a long, long way from you already.
posted by kindall at 5:54 PM on January 4, 2006

Thanks for the info so far everyone. I'm still digesting it, but so far I'm thinking it's probably worthwhile to open a 401K and abandon it for decades if I leave.

I'm looking forward to I Love Taco's followup too :)
posted by -harlequin- at 10:40 AM on January 6, 2006