Hi,
I am currently working in the US on a H3 visa. Not sure I will work and retire here. Should I still contribute to 401k now if my time horizon is only to stay 3-5 yrs then possibly reside outside the US? If so, it seems early withdrawal will cost me so much penalties and taxes. Should I just invest my money in mutual funds or the like if I'm not sure to stay here for good?

Before you decide to contribute to 401K you must understand the working of 401K in more detail.

If you draw money before 59 1/2 you will pay early withdrawal penalty of 10% and the amount withdrawn is your taxable income, and if you are not U.S. citizen or resident it will be subject to withholding. Also when you are not in the U.S. how will you transfer the money so your personal use?