If you’re in the United States for work purposes, choosing the 401(k) plan that your employer provides is beneficial. The 401(k) is one of the most effective ways to save money for your retirement.
Depending on the plan, the amount you contribute to your 401(k) account might be tax-deductible. However, what will happen to your 401(k) account if you plan to leave the United States and return to your home country? Continue reading the article to the end to learn more.
Leave the 401(k) Account Untouched
Even if you want to return to your home country after working in the United States for a couple of years, you can decide to leave your 401(k) account with your U.S. employer until the age of 591/2. This way, you can avoid taxes until you withdraw money from your account.
You can also choose Roth 401(k), which will help your money to grow tax-free. But remember that if the overall balance of your 401(k) is less than $1,000, some employers might not want you to leave behind your account. When you leave your job, you will have two months to decide whether you need to roll over your 401(k) account to an IRA.
Additionally, leaving the 401(k) account in the United States might have some potential downsides. When you choose a 401(k) plan, you might not have numerous investment options. Additionally, if your employer wants to terminate the 401(k) plan, you will need to either withdraw the whole amount, which will make you face tax consequences, or roll over the fund to an IRA. Make sure you visit our website to know more.
Consider Rolling Over Your 401(k) Account to an IRA
This is a second option if you’re leaving the United States but don’t know what to do with your 401(k) account. Unlike the 401(k) account the employer sponsors, you need to open an IRA account all by yourself. As mentioned earlier, once you leave your job, you can roll over the money to an IRA account. Make sure you choose between Roth IRA and a traditional IRA. As per Investopedia, a traditional IRA is not the same as a 401(k).
If the contributions to your 401(k) account were pre-tax, you would face no problems rolling over your money to the traditional IRA account as you would face no tax consequences. You can continue growing your assets tax-free. However, it will be taxed when you grow old and want to withdraw the amount.
You can also choose Roth IRA, where you can also avoid worrying about taxation. Keep in mind that withdrawing money from a 401(k) account before the age of 591/2 will make you receive a penalty.
Cash Out the Entire Amount
This is the third option for your 401(k) account if you want to move back to your home country. When you leave your job, you can withdraw the entire amount of the 401(k) account. However, if you haven’t reached the retirement age, which is 591/2, not only will the withdrawal be taxable, but you also need to pay a 10% early withdrawal fine on the overall amount.
Between these three options, we would always encourage people to choose either option 1 or 2 when leaving the United States.
This is what you need to do with your 401(k) account if you want to leave the United States. Do you have any other questions? Make sure you let us know by commenting below.