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Is opening a 401k in the US a good choice for somebody moving to under an L1 Visa (max time: 5 years) for a few years?
I imagine that if you go the green card route, this is a no brainer, but if that wasn't the case I wonder about the terms to keep or cash it out, including taxation in both the US and whatever country you happen to go back to.
Some companies give a match up to a certain percent. That is your employer gives free money equal to what you save in 401k. In that case you are profitable even with the taxes and penalty
I would suggest you don't.
The reason is that if you leave the US and on an L-1 visa you will likely leave the US when your term is up. The issue is what to do with your funds. The low penalty is usually from one retirement plan to another and you can take a look at options on Schwab, so if you need to roll it over to an account in a foreign country you may have to take a cash distribution, which will cost you in penalties and taxes more then having a post-tax brokerage account, that you leave untouched with dividend reinvestment.
Depending on your current income, contributing to 401k and withdrawing after you're back home may still be beneficial even with taxes and penalties. Consider that there's no tax below personal exemption, if you withdraw that amount every year - you'll just pay 10% penalty, whereas if you don't contribute at all - you'll pay your marginal tax + State tax. If there's an employer match - that would make it even more worth the effort.
Also, you can always leave it there, roll over to a IRA and let it grow pre-tax, assuming your home country's laws allow that. That would make a nice addition to your retirement at home when the time comes.
