I am working in US on H1B visa. Is it advisable for H1B visa holders to contribute to H1B if I want to leave country before retirement? I understand I will be imposed a 10 % penalty but my tax bracket will be lower when I leave the country. Please advise.

There is NO NEED to cash out your 401K.

If your employer permits it, you can retain the 401K after you leave the country, managing the file using email and phone calls, then begin withdrawal once you hit the age of 59.5 years of age.

If the employere requires you divest yourself of the 401K when you leave, you can roll the money over into a rollover IRA with any of a number of brokerage house or banks. I typically recommend Charles Schwab, since Schwab caters to an international clientele.

Once your age hits 59.5 years of age, the withdrawals WILL be subject to U.S. income taxes, but only the distribution will be taxed on your non-resident return (Form 1040NR), probably at a low tax rate of 10-15%. With NO early withdrawal penalty.