401(k) for New Arrivals to the US: A First-Year Retirement Guide

The 401(k) Question Most New Arrivals Get Wrong

The 401(k) paperwork typically arrives in the first week of a new US job. The enrollment email asks for a contribution percentage, a pre-tax or Roth election, an employer-match confirmation and a list of fund choices, often before the new arrival has had a single conversation about what any of it means. Most foreign countries do not have an exact equivalent to the 401(k), so the defaults that a home-country colleague would take as obvious are often unfamiliar. The decision made in that first week compounds for decades.

This article is a first-year guide to the US retirement system for a newly-arrived foreign national. It covers the 401(k), the Individual Retirement Account, the Roth variant of each, the Health Savings Account, and how they interact with a home-country pension already in place. It is written as an educational introduction rather than a technical deep-dive; the deeper retirement-planning treatment for expats already in the US sits in the retirement flagship for this series.

The 401(k): What It Is, How It Works, What to Decide First

A 401(k) is an employer-sponsored defined contribution retirement account. The employee chooses a contribution percentage of salary that is deducted from pay before tax (traditional) or after tax(Roth, where offered). The employer commonly matches some or all of the contribution up to a stated percentage of salary. The account is held with a custodian chosen by the employer, and the employee selects from a menu of investment options inside the plan.

Contributionlimits and the match

The annual contribution limit is set by the IRS and changes year to year. A catch-up contribution is available from age 50.The employer match is a separate amount, also capped, and does not count against the employee limit. Employer matches commonly vest on a schedule, a portion per year of service, rather than being immediately owned outright. In most cases, contributing at least enough to capture the full match is the starting point of any first-year 401(k) decision.

Traditional versus Roth

A traditional 401(k) contribution reduces current-year taxable income; the balance grows tax-deferred and is taxed on distribution. A Roth 401(k) contribution is made with after-tax dollars; the balance grows tax-free and qualifying distributions are tax-free. The choice is shaped by the current marginal tax bracket, the expected future bracket and, importantly for a foreign national, what country the retiree is likely to live in when the account pays out. Departure from the US is a real possibility for many internationally-mobile careers, and Roth versus traditional plays differently on a future non-US return.

Investment choices inside the plan

The menu of funds inside a 401(k) is set by the employer and varies widely. Target-date funds, index funds and active mutual funds are common; self-directed brokerage options are sometimes available. Unlike a foreign brokerage account, US mutual funds inside a 401(k)do not raise the PFIC issues that catch non-US funds held in home-country portfolios.

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The IRA: the Personal Retirement Account

An Individual Retirement Account is a personal retirement vehicle, separate from any employer plan. Traditional IRA contributions are made with pre-tax or after-tax dollars, the deductibility depending on income and whether the taxpayer is an active participant in an employer plan. Roth IRA contributions are made with after-tax dollars and grow tax-free, with eligibility phased out above IRS-published income thresholds.

Eligibilityand the income thresholds

For a high-earning new arrival, direct Roth IRA contributions may be unavailable because of the income phase-out. Traditional IRA deductibility is similarly limited where the taxpayer or spouse is an active participant in an employer plan. Both sets of thresholds are published by the IRS and change year to year; confirming current-year eligibility is typically part of the first US filing conversation with a qualified tax preparer.

The rollover question later

When employment with a US employer ends, whether for another US job or a move out of the US, the 401(k) balance can typically be rolled into an IRA, left with the former employer, or in some cases cashed out. Each path has different US tax consequences. The rollover decision is covered in more depth in the retirement flagship for this series.

The Health Savings Account and the Home-countryPension

The HSA where a compatible health plan is offered

The Health Savings Account is a US vehicle available to individuals enrolled in a qualifying high-deductible health plan. Contributions are tax-deductible, growth is tax-free, and qualifying medical withdrawals are tax-free. The HSA is sometimes described as the most tax-efficient account in the US system. Access depends on health plan eligibility, not on employer, some employers offer HSAs alongside 401(k)s, and unused balances carry forward year to year without a use-it-or-lose-it rule.

Co existing with a home-country pension

A 401(k) or IRA opened as a new arrival does not replace an existing home-country pension. The two systems coexist, the home-country pension continues to sit on the US return with its own treaty position (where available), its own reporting under FBAR and Form 8938, and it sown contribution rules. The home-country plan typically stops receiving new contributions once US payroll and US residency take over. Country-specific treatment of the home-country pension is covered in the Theme 2 country pieces, the UK, Ireland, Switzerland, Continental Europe and Middle East articles in this series.

Spousal and family considerations

Where a spouse is also US-resident, each spouse has a separate 401(k) and IRA framework. Where a spouse is non-US-resident, filing status elections, particularly married-filing-separately versus the §6013(g) election to treat a non-resident spouse as a US resident for tax purposes, change the IRA eligibility picture. This is a conversation that benefits from being had early in the first US year, not at the filing deadline.

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US Retirement Account Types at a Glance

Illustrative summary of the main US retirement account types a new arrival is likely to encounter in their first US year. The IRS publications are the authoritative source for current-year contribution limits, income thresholds and rules.

Source: Skybound 2026

Questions To Raise With A Qualified Adviser

For a new arrival thinking through the401(k) enrolment decision and the broader first-year US retirement picture, questions worth raising with a qualified US tax preparer and a cross-border adviser include:

• What is the full employer match formula, and what contribution percentage is needed to capture it?
• Is a Roth 401(k) option available, and what does the traditional-versus-Roth choice look like given my current bracket and likely future residency?
• Am I eligible to contribute directly to a Roth IRA, or is the income phase-out already in play?
• Is an HSA available through my employer's health plan, and does the high-deductible structure fit my household circumstances?
• How does my 401(k) or IRA interact with my existing home-country pension, and does my first US return need a treaty position on the home-country plan?
• If I leave the US at some point, what will happen to the 401(k) balance, and what decision points will arise at departure?