On a work visa,should i participate in retirement plans at work? - Part 1

With the increasing global nature of work and jobs, a lot of us find ourselves in the situation where we end up with a work visa (H1b,L1) etc after graduation from grad school or being sent over by a company to work as a consultant for a few months or years.

For those that graduate and join the workforce on a H-1b visa,a lot of questions pop up. Will i be here for a while, long enough for the company's 401-k vesting period?, will i eventually want to become a permanent resident or citizen or will i go back home for good? All these questions and uncertainties mean that most people procrastinate and do not participate in employer sponsored 401k plans. BIG financial mistake !




Most employers offer a percent match to 401k contributions along with a vesting period (say 5% match with a vesting period of 3 years - which simply means that the employers 5% match is yours to keep after a period of 3 years). In my opinion if the employer offers any kind of match, one should participate in the 401k as soon as it is made available without bothering about what he or she will be doing or where will they be in 5 - 10 years time.

Consider the simple example of someone making $50,000 a year and putting 5% away for the 401k to get the employer 5% match. H1-b's are for a 3 year period with the option to get another 3, so if this person stays with the company for those 6 years and continues to contribute regularly he will be putting away $5000 a year ($2500 employee + $2500 match, lets consider no raises for simplicity). Lets also assume that he invests that money and it does not grow at all (in reality if invested wisely, getting a 5% annual return is very realistic) so he ends up with $30,000 in his account at the end of 6 years. Not contributing at all would mean he would be getting about $1750 extra per year in his paychecks ($2500 - 30% tax), this would be a total of $10,500 (again not considering any growth).

Tomorrow i will write about the different ways the guy can make those $30,000 work for him and how almost always he will end up having a much better nest egg than he would if he simply didn't contribute...

Part 2 - here