H1-B worker tax question

[deya416]

What is the name of your state? Georgia
I am an H1-B worker and have been working with my sponsor since october 99. I don't have a green card, and my H1-b visa is coming to end soon which means i am going to return home soon. Can I get any money from my retirement money or else since i have been paying all taxes: Fed, State, social security?
Also, my last statement from Merill lynch shows an amount as " vested Balance" what does that mean?

thanks

[abezon]

Your vested balance is the amount of $$ on your retirement plan that you get to keep if you stop working for your employer. Anything that is not vested is lost when you leave the job.

DO NOT cash out the retirement plan or you will pay big taxes & big penalties! Talk to a tax pro before you even consider touching that money. Note: the plan administrator is not a tax pro & probably doesn't know his *ss from his elbow when it comes to nonresident aliens & retirement accounts. I have had numerous clients call me saying their plan administrator/broker told them they had to cash out their IRA when they left the country. Nonsense!

I'd recommend you set up a traditional IRA & Roth IRA immediately. When you leave work, roll the 401k into the traditional IRA (nontaxable act), then gradually convert the traditional IRA to a Roth IRA -- $3200 or so per year per taxpayer/dependent can be converted without paying taxes to the US. When you hit retirement age, you can withdraw the money without paying any taxes to the US. (It may also be tax free in your home country, depending on your country's laws or a tax treaty.) Neat trick, eh? If you can, it would be best to maintain a US address & phone number to use with the IRA custodian. This gives your broker plausible deniability regarding SEC residency requirements, which gives you flexibility in investing options. If you're a nonresident, I believe you cannot buy mutual funds & are stuck with stocks & maybe bonds. Given the existence of index funds that trade like stocks, this is not so much of a problem as it was a few years ago. Most brokers aren't familiar with the investing legal requirements for nonresident aliens. Make sure the firm you pick is.

What country are you from? If it is a country that has a totalization agreement with the US, you will be eligible for discounted social security benefits from the US because you worked between 5 & 10 years in the US. If you work less than 5 years in the US, you get credit for your social security in your home country. You can check on totalization agreements at [url]www.ssa.gov[/url]

[deya416]

Abezon,
thank you very much for your input. It was very informative. I am 27 years old from Ivory Coast (west Africa). I am not a resident, just H1-B worker, and i am ready to go back home. To be honnest with you, i am not quiet yet thinking about my retirement (although i should), i am more worried about having a decent return to home where i could maybe have something of my own and make a living. What i have in mind is taking everything $ with me that i have earned and be able to do something with it back home. here is the deal: I have about $12,000 vested balance as of last month. i am willing to pay taxes/ penalties and take with me whatever is left of it.... is that possible? and do you know how much approximitely i can get?
by the way this is not a 401K, this is from a Cons. Ret. Benefit Plan.
A sad reality of life is that back home we have enough worries day to day living insecurities to the point that retirement is almost never planned for.

[LdiJ]

Originally Posted by deya416

Abezon,
thank you very much for your input. It was very informative. I am 27 years old from Ivory Coast (west Africa). I am not a resident, just H1-B worker, and i am ready to go back home. To be honnest with you, i am not quiet yet thinking about my retirement (although i should), i am more worried about having a decent return to home where i could maybe have something of my own and make a living. What i have in mind is taking everything $ with me that i have earned and be able to do something with it back home. here is the deal: I have about $12,000 vested balance as of last month. i am willing to pay taxes/ penalties and take with me whatever is left of it.... is that possible? and do you know how much approximitely i can get?
by the way this is not a 401K, this is from a Cons. Ret. Benefit Plan.
A sad reality of life is that back home we have enough worries day to day living insecurities to the point that retirement is almost never planned for.

Your employer will be required to withhold about 30%...take the rest and go....best wishes to you.

[abezon]

If you must cash it out, cash it in 2007, after you have left the US. This will put your income tax below $900, & your penalty for early withdrawal will be $1200. You'll net nearly $10,000.

If you take the money when you leave in 2006, you'll pay income tax on all of it (15 - 25%) AND a 10% penalty of $1200. That's a swing of $900 - 2100! If I told you you could make$900-2100 on that money if you it to me until Jan 2007, wouldn't you be willing to take that deal? (Don't actually give me the money! I'm just trying to show you how much difference a few months could make to your bottom line.) You'll probably have to file a 1040NR in 2008 to get back the extra withholding (mandatory 20% or $2400), but that will give you a refund of $300 or so in 2008.

One note, you're only 1.5-2 years from qualifying for social security benefits. Is there any way you can gut it out another 2 years? Then you could collect social security from the Ivory Coast once you hit 62-67. Check your social security statement or call the local social security office to see how close you are to qualifying & how much benefits you'd get. Then think of how far that money would go in West Africa.

[deya416]

My last social security statement shows that i have 38 credits at this time, and to get retirement benefits, you need 40 credits. My questions are:
1- can i qualify for social security benefits if i am not a permanent resident of the U.S. ?
( i don't have a green card. I just have a work visa H1-B valid til april 2008)
2- and if i can qualify, can i collect benefits then if i am living outside of the U.S. ?
3- and if i don't qualify for social security benefits, is there anything i can qualify for since i have paid social security taxes for over 7years ?
thanks a bunch!!!

[abezon]

1. yes. you probably qualify already, since your 2006 quarters have not yet been added to your total credits.
2. yes -- subject to nonresident withholding
3. no