Is your 401(k) your primary retirement vehicle?
Now imagine this- after years of socking away money into your 401(k), envisioning a relaxed retirement lifestyle and financial security, life suddenly throws you a curveball-deportation!
Facing the prospect of deportation is a situation nobody wants to imagine, but it is important to understand the potential impact it can have on your 401(k) savings. So, what happens to your 401(k) if you get deported?
TLDR
If you are deported, you will keep your 401(k) retirement savings intact, even if you will no longer work in the United States. You will still get access to the retirement savings you soaked away during your working years, but certain limitations may apply to your account. For example, you won’t be allowed to make further contributions to the 401(k) plan, and you may have to wait until you reach age 59 ½ to access the money.
What does deportation mean?
Deportation is the process of removing a person from the United States for various reasons, including violation of immigration law. You may be deported if you are a non-citizen US citizen, and you participated in criminal acts, violated the US visa, or you are a threat to public safety.
When it comes to deportation, there are several terms that can be used to describe deportation. Examples of these terms include being placed into deportation proceedings, being ordered deported, and being deported.
If you are placed into deportation proceedings, it means that the federal government has initiated a process that could result in your removal. In this case, the government will list the charges against you, and you will be ordered to appear in court.
If are being ordered deported, it means that an immigration judge has concluded the scheduled hearings, determined you are not allowed to remain in the United States, and ordered your removal.
If you are being deported, it means you are being removed from the United States and its territories. You will be required to leave the United States on your own or receive a bag and baggage letter from Immigration and Customs Enforcement informing you where and when to show up for removal.
What Happens to My 401k If I Get Deported?
Deportation does not have a direct impact on your 401(k) retirement savings, and this means you get to keep your retirement savings. 401(k) plans are offered by employers in the private sector, and they won’t be affected by deportation.
However, if you have been deported, you may face certain limitations when accessing your 401(k) money as a non-US citizen. Since you will no longer be residing in the United States, you won’t be able to contribute to the plan. Depending on the plan rules, you may be allowed to keep the 401(k) with your former employer or transfer the retirement savings to another plan.
What to do with 401(k) after deportation
While you can choose to leave your 401(k) behind, you should explore the options you have and make an informed decision.
Here are the options you may have:
Leave the account with your employer
You can choose to leave your 401(k) plan intact, even if you will no longer be working in the United States. This allows your 401(k) money to continue growing tax-deferred until you reach age 59 ½ to start making penalty-free withdrawals.
However, your 401(k) balance must be at least $5,000 for your former employer to continue managing your savings. Remember to update your contact information with your plan so that you can continue receiving plan statements and other important communications from the plan.
Roll over to an IRA
If you are unable to leave your 401(k) with your former employer after deportation, you can transfer your funds to an IRA.
You can request a direct rollover from your 401(k) to the IRA plan custodian to avoid incurring taxes and penalties. An IRA gives you greater control over your retirement money, and you have access to a wider pool of investments.
If you choose to roll over to a Roth IRA, you will be required to pay income taxes immediately, since a Roth IRA is funded with after-tax dollars. However, once you reach age 59 ½, you can start taking tax-free qualified withdrawals from the Roth IRA.
Cash out the 401(k)
If you are unable to leave the 401(k) with the former employer or roll over to an IRA, the other option is to cash out the 401(k). Cashing out 401(k) should be a last resort since you will be subject to income taxes and a potential penalty, which could significantly reduce the amount you receive. Additionally, taking out money meant for your retirement deprives you of the potential for compounding growth. However, if you are eligible for financial hardship withdrawals, you may be exempted from the 10% early withdrawal penalty.
How to communicate with 401(k) plan after deportation
Once you have been deported and settled in your new country, you should find ways of communicating with your 401(k) plan provider to know what happens to your 401(k) money and the options you have.
Start by gathering information related to your 401(k) account, including your 401(k) account number, the name of the plan provider or financial institution managing your 401(k), and their contact information. You can get this information from your 401(k) statement or other plan communications.
Once you have obtained the 401(k) plan provider’s contact information, you can reach out to them via email or phone. You should explain your situation by disclosing your removal from the United States, and ask the available options for managing your 401(k) money. You should also ask about the restrictions on contributions, withdrawals, and other information regarding your account.
If it is not practical to leave your 401(k) with your former plan, ask about the process of transferring the 401(k) money to another retirement plan that you can maintain while you are outside the United States.
Alternative retirement savings options after deportation
Dealing with the aftermath of deportation can be challenging, but you should remain committed to your rebuilding your retirement savings.
While you will no longer be eligible to contribute to your 401(k) plan, you should figure out other ways of saving for retirement. You should also be proactive in seeking employment opportunities in your new country or exploring your entrepreneurial spirit.
Here are the alternative options to consider:
Contribute to local retirement accounts
As you settle into your new country, you should find out the equivalent of 401(k)s and IRAs in your home country.
Most countries have retirement and investment plans for both the public and private sectors, and you should figure out the most convenient retirement vehicle for you. You should compare their eligibility criteria, contribution limits, investment options, as well as withdrawal rules.
Build your investment portfolio
As you save for retirement using the local retirement plans, you should also focus on building an investment portfolio outside of your retirement accounts. You should evaluate investments such as stocks, bonds, mutual funds, real estate, crypto, etc. You should diversify your portfolio to spread your risk to each asset.
If you are not familiar with the investment environment in your new country, you can work with an investment advisor to guide you on suitable investment options based on your risk profile and goals.
Employer-sponsored plans
Though deported, you still have desirable skills that local employers in your new country may be interested in. Once you secure employment, you should explore the retirement plan options offered by your employer and join as soon as you become eligible. Most employers may offer retirement plans or pension plans to their employees. Depending on the retirement plan options available, you should start contributing to the plan and collecting the employer’s match, if available.
Final Thoughts
While deportation can present a huge setback in your life, you should understand the implications it will have on your 401(k) plan. Generally, deportation will not have a direct impact on your 401(k) retirement plan, but there may be limitations on contributions and withdrawals. Despite the setback, you can continue rebuilding your retirement savings using the 401(k), IRA, or other retirement savings vehicles available in your new country.
References
USA.GOV: Understand the deportation process
Nolo: What Is Deportation (Removal)?
Social Security: Effects of Removal (Deportation) on Retirement or Disability Beneficiaries
Investopedia: How Are 401(k) Withdrawals Taxed for Nonresidents?