Need tips on 401K savings and contributions

Hello Ilites...

could you please suggest tips on 401K savings i.e

how much you contribute or suggest to contribute...
how do you invest or does your company invest in the funds or bonds?
do you have any financial planner who suggests what to do or invest in?
what are the tax saving tips you pick up...(like buying home in US or India or other things which help in reducing taxes...)

I appreciate your views on this...basically I am looking for some suggestions on financial planning etc


thanks inadvance

Hi - I am assuming that your employer has offered 401k as part of your benefits. We have discussed this in some detail at this thread 401(k). Typically you will be given a list of available investments to choose from - you can research each one to see the returns and performance of each fund and then determine how to invest. You should spread your investment and not be heavy in any one area.

As for suggestions in tax planning - I would say that you should definitely take advantage of any retirement benefits offered at work i.e. 401k. If you buy a house in the US, the interest you pay towards your mortgage is a deductible amount in determining your taxes along with real estate taxes paid, etc.

thanks shobhana..

Hi Sahithya garu,

I appeciate ur planning towards savings. I dont know ur age. But, i suggest u to devide ur investments ie Deposits, Kids plans, Pension plans, Unit Linked Insurance Plans etc in our reputed world no 1 Insurance Co. of LIFE INSURANCE COMPANY OF INDIA.

Pl feel free for further information.

Regards

Lalitha Reddy

Hi Ladies,
Need inputs from u...My company is offering
a. 401K with a match %.
b. 529 college savings plan
c. Life insurance for spouse and child

Our Situation
We maybe leaving to India in about 5 yrs time. And I have a child who may be interested to go to college here(he is just a kid, so its just a possibility)...That being case should we invest in these plans..

Incase we leave the country how do we draw money out with least penalty..

Thanks a lot

Originally Posted by indianlady1

Incase we leave the country how do we draw money out with least penalty..

Thanks a lot

The other day I was watching Suzie Ormans show, and she gave some tips on how to save on the penalty of early withdrawals on 401k.

You can roll over the 401k into Roth IRA (If you are leaving the company) and keep it in IRA for 5 yrs and then withdraw the amount you invested. (i.e only your contributions can be withdrawn from Roth IRA without penalty. the match given by your company and the % increase or profit you got cannot be withdrawn untill you are above 55 yrs old)

Now you can do the same i.e with draw amount from 401k (when you are with the employer) ie again only your contributions can be with drawn without penalty. but again the amount your employer has matched and the Profit cant be withdrawn until you are 55 yrs of age .

If you calculate the penalty on any early withdrawals it comes to around 35 to 40% of the total amount in the IRA/401k.

You can take loans from 401k for buying your first home or for a college payment without any penalty and pay back the amount to 401k fund monthly....

IndianLady1,
I did exactly what SriVidya explained. Converted it to a Roth IRA after moving back to India..
Btw, what is your immigration status. If you are a US citizen/GC holder, you may keep your roth IRA till you turn 59.5 and start drawing from it for your retirement.
I too hope the IRA may be of some use to my LO if she choses to go back to the US for studies or otherwise. Btw, if you are planning to with draw, then the best time will be to withdraw in chunks after relocating to India(yearly 15K or so till you exhaust it). Assuming you will be earning in INR, if your income is below the annual foreign income of USD90K p.a(as of this year - it may change in 5 yrs) your Indian Income will be exempt from taxes. If you are not in the tax bracket your early withdrawal penalty significantly reduces(I'm not sure what # it will be but around 10-15 is what I remember reading somewhere).
I have touched upon it here - US Citizens moving to India .Of course, my research was only for USCs. If you are not going to be getting US citizenship then you should research your options.
I am still not sure of the tax implications in India if you choose to withdraw and bring it into the country. Here is a thread in R2I club forums discussing 401(k)/IRA - 401K, IRA - General Questions - R2IClubForums. This is a good resource for any finance related queries for people relocating, taxes et al may be discussed here. Btw, I highly recommend Suze Orman's book for 2009. I learned all about Roth IRA conversions from the book and it was easy to understand. It was available online, but I just cannot find the link right now.

HTH,
L

Thanks a lot Srividhya75 and Laks09...very useful information

Ladies would you have similar inputs on 529 plan and life insurance..Is life insurance in US similar to LIC plans

I hold a H1 visa and we may get EAD soon but no plans as such to become US Citizens

Thanks again
IL

Originally Posted by indianlady1

Thanks a lot Srividhya75 and Laks09...very useful information

Ladies would you have similar inputs on 529 plan and life insurance..Is life insurance in US similar to LIC plans

Info I know as far as 529 plans are concerned is that...Its better to put money in retirement accounts first and then into 529 plan as if we put amount in 529 plan, they would charge penalty if we take the money out for anything else other than education. So except for education we cant withdraw this money.

On the other hand , Roth IRAs and 401ks allow you to withdraw our contributions penalty free for education or other purposes and also give us a loan.

IndianLady1 - I would give it an extra thought before putting money into 529 plans. You have mentioned that you may not stay in the US. In the event that you move back to India and your kids go to school outside the US(maybe India or some other country) then I'm not sure how 529 plans work. Like I mentioned in my thread, the clause in all 529 plans that I have looked at says the child will be able to use the money in "foreign institutions that qualify". What if they go to a school which is not qualified? Then you may have to pay penalty for drawing the money. Also, if the kids go back to the US for college education, the likely hood of them getting grants/loans etc will reduce if they have a 529 plan in their name. Save for college, but use other means and ear mark it for higher education.
If you convert your 401k to Roth and leave it as is in the US, maybe you can use that to fund higher education.
Regarding life insurance in the US, there are various options. The best would be to get a term life policy, it is the cheapest. I've not seen any good value accruing insurance policy in the US(like our LIC stuff here). I may be wrong.