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    401K or Roth 401K

    Asked Feb 5, 2008, 12:49 PM — 3 Answers
    Hai,

    I am an Indian, presently working for a USA company. I will be in US for next 2-3 years and then I will return back to my country. My employer gave the option to enroll for 401K plan or Roth 401k or a combination of both. And the employer matches my contribution at the rate of 50cents on a dollar.

    I do not want to keep my money in these accounts till I reach 59.5 yrs old. I am aware of the 10% penalty of early withdrawal of 401k money + taxes. I guess this is the same case with Roth 401k as well for early withdrawal. Right?

    I opted for the combination (401k and Roth 401k) last year and have been funding (contributed 15000$ total last year) the account since then. But I always have the confusion whether I should have gone for only 401k or only Roth 401k. Reason: If I am going to pay taxes for both funds for early withdrawal, why not go for only 401k option, with which I get at least tax benefits during the funding period.

    Which one is good for my case? Please advice.

    Also,

    * is it possible to transfer the money to Indian based IRA account?
    * or is it not worth contributing to a retirement account at all for my case?

    Appreciate your time and help.

    Thanks!

    Last edited by nethajij; Feb 5, 2008 at 01:06 PM.
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    3 Answers
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,610, Reputation: 837
    Senior Tax Expert
     
    #2

    Feb 6, 2008, 02:56 PM


    It is possible that the 401K will grow enough to offset the 10% Early Withdrawal Penalty.

    However, if you are willing to tranfers the money to a Indian-based IRA account, why NOT do the same for a U.S.-based IRA? It beats all to hell the cost of the early withdrawal.

    As for the ROTH 401K, you can withdraw what YOU put it in tax-free, but you will pay a penalty if you withdraw the earnings or the match.
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    nethajij's Avatar
    nethajij Posts: 19, Reputation: 1
    New Member
     
    #3

    Feb 6, 2008, 04:41 PM
    Thanks a lot, ATE. This clarifies my doubts.
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    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,610, Reputation: 837
    Senior Tax Expert
     
    #4

    Feb 11, 2008, 01:37 PM


    Glad to help!
    Helpful

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