Deciding what to do with the money you earn in the US can be confusing for H1B visa holders. You may be worried about your hard-earned money becoming inaccessible – frozen in a country you may not even live in after a few years.
Here’s the only thing you need to remember about investing with an H1B visa:
As long as you continue working for the company that sponsored your work visa, you can invest your money however you please. Your H1B visa holder status will remain unaffected.
If you’re thinking, “why risk investing in the first place?” Your concern certainly holds water.
In this post, I’ve tackled the importance of investing and outlined the best investment options for H1B visa holders.
Why is it Important to Invest in H1B Visa?
Regardless of where you are, the money you earn loses value over time because of inflation. So while you could save the money you made, it will only be worth lesser the longer you save it.
Investing your money gives it the potential to beat inflation, and in the long run, it can also help you accumulate wealth.
Investing in the US as a H1B holder allows your money to grow in a flourishing market. You can decide how to invest your money based on how much capital you have, your risk appetite, and the length of time you expect to be in the country.
Generally speaking, if you need to leave the country, liquidating your investments is relatively easy.
With that out of the way, here are the 11 best investment options for H1B visa holders.
#1 High-Yield Savings Accounts
This is the most conservative way to invest your money. There is no risk involved with putting your money away in a High-Yield Savings Account (HYSA). You could open a HYSA account with banks like LendingClub Bank and get up to 0.75% interest on your funds. You can look through the best banks that offer HYSAs here.
While zero risk will seem attractive to conservative H1B holders, there’s a big disadvantage to investing your money in HYSAs.
Banks in the US offer extremely low-interest rates that are much lower than the inflation rate. So while your money will grow, it won’t grow fast enough to be worth the same in a few years.
But this doesn’t disqualify HYSAs as a viable investment option. You could put away 3-6 months of your income in a high yield account and use it as an emergency fund.
#2 Health Savings Accounts (HSA)
A Health Savings Account is an excellent investment option if you have a High Deductible Health Insurance Plan (HDHP).
HDHPs are insurance plans with lower premiums, but the catch is that you will need to spend more on healthcare before the company starts to cover the costs.
These plans are advantageous in and of themselves; however, coupling them with a Health Savings Account can help H1B holders save more on healthcare.
Employers typically contribute to your HSA twice a year (besides your regular remuneration). The best part about it is that you don’t have to invest in the HSA. Your employer will continue to contribute to the account regardless.
Furthermore, the money in your Health Savings Account is pre-taxed. So, getting an HSA essentially gives you free money for medical expenses.
Depending on your financial situation, you could invest the money in the HSA into the equity market (so long as the account provider allows it).
#3 Investment Accounts: Stocks, Bonds, Money Markets
Creating an investment account with a brokerage enables H1B holders to invest your money into stocks, bonds, and money markets. You can consider signing up with Robinhood or TD Ameritrade and start trading right away.
However, you must remember that using these accounts offers no tax benefits and requires a social security number to open.
Stocks give you small ownership of a company, and if the company grows, your money grows.
Bonds are financial instruments with which you lend money to corporations or governments for a fixed period. The issuer will pay you a fixed interest on set dates (typically quarterly), and you get your money back when the bond expires.
Bonds are among the safest investments you can make with an investment account. However, they offer a low ROI, which is why you must invest in bonds with the following rule of thumb in mind:
Total investment in bonds (in %)=Your age-10
So, if you’re 25, invest 15% of your portfolio in bonds and the rest in stocks.
If you have a higher risk appetite, you can invest your emergency fund in the money market with an investment account instead of using an HYSA. Money market trading refers to trading in short-term debt investments, and you can get started by investing in a money market fund such as the Invesco Premier Portfolio Fund.
#4 Certificate of Deposit/Fixed Deposit
Certificate of Deposits (CDs) are another tool you can use to invest your money, especially if you’re worried about risk. CDs give you a higher return than HYSAs on average; however, the interest isn’t high enough to beat inflation.
While we recommend putting away emergency funds in the money market, CDs are the next best thing if you’re a conservative investor. Institutions like Bank of America offer CDsa, and you can learn more about their offerings here.
#5 401K Retirement Accounts
401k accounts are powerful tools that you can use to build wealth in the long term. When you open a 401k account, your employer will match your investment up to a certain limit. We recommend that you invest at least as much as your employer will match.
It is important to note that if you withdraw money from your 401k account before you turn 59 and a half, you will need to pay a 10% penalty.
There is a way for you to withdraw money from your 401k account without paying the penalty when you turn 55. If your employment with the company maintaining your 401k ends in the year you turn 55 (or later), you won’t need to pay the 10% penalty. This is called the “Rule of 55.”
You can also take a 401k loan if you need money for a down payment for a home. However, you will need to pay the money back at the prime rate plus one or two percentage points.
When your H1B visa expires after six years, or you have to move back to your country for any reason, you will need to pay 10% of your invested funds to the brokerage. However, you will also get the free money that your employer matched with you. The money you put in 401k accounts is taxed after retirement.
#6 Traditional Individual Retirement Account (IRA)
If opening a 401k account doesn’t sound viable, or your company does not provide a 401k account, you can open a traditional IRA.
You can choose the asset classes that the fund will invest in, and similar to a 401k, the money you put into the account is taxed after you retire. Looking into the TIRA Charles Schwab offers is a good place to start for H1B holders.
If you decide to withdraw the money before you turn 59 and a half, you will need to pay an additional 10% tax on the money.
#7 Roth IRA
The main difference between the traditional and the Roth IRA is that with a Roth IRA, you pay taxes now and enjoy the tax-free money later. However, you must be wary that there are limits to how much you can contribute to the account depending on your income. You can read about it on the official IRS site.
Just like 401ks and traditional IRAs, employers typically match the amount you invest into the Roth IRA.
Furthermore, you can withdraw funds from your Roth IRA at any time without any taxes or penalties if you’ve maintained the account for five years or more.
#8 Cryptocurrency
If you have a knack for trading cryptocurrency, investing in crypto is an excellent idea. In the eyes of the USCIS, trading crypto is no different from trading stocks.
Trading cryptocurrencies offers a range of benefits, and you can read more about them here.
As long as you trade part-time and continue working at the company that sponsored you, your visa status will remain unaffected.
#9 Real Estate Investments
There are several ways to invest in real estate and make money with an H1B visa. You could buy a house and:
- Rent it out
- Sell it for a profit
- Live in a part of it and rent the rest out
However, this may require adequate involvement outside of your job. You will need to read up on concepts like CAP rate and cash on cash return. An H1B holder may also need to hire a property management company to do the legwork for them.
It’s best to speak to an attorney before investing in real estate to get a clear idea of how you can pull it off.
#10 Employee Stock Purchase Plans
Some companies offer ESPPs, allowing you to purchase the company’s stock at a discount price as long as you commit to purchasing the stock in regular periods.
The stock is automatically purchased from your payroll. While you can sell this stock at any time, you will need to pay short-term capital gains tax if you decide to sell it within a year of purchase.
You can either load up on the company’s stock for as long as you work there or sell after a year and diversify your portfolio.
#11 FCNR and NRE
Foreign Currency Non-Resident Accounts are fixed deposit accounts available to NRIs. These are held in foreign currencies (including USD), removing the need for you to pay forex rates. ICICI Bank offers easy-to-use FCNR accounts with interest rates starting at 4.90% for NROs.
These accounts pay you a higher interest rate than CDs and HYSAs, so if you’re an Indian H1B holder, this may be the right investment option for you.If you want to put away some money for later use when you return to India, you could open an NRE account. NRE accounts are tax-exempted bank accounts that you can use to put away your earnings in the US. You can use these accounts to maintain international diversification. HDFC Bank offers interest rates starting at 2.50% on its NRE accounts.
