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How Should Indians in The US on H1B or L1 Invest?

How Should Indians in The US on H1B or L1 Invest?

By Adarsh Thampy. Last updated on January 31, 2019

Finally, you are living in the promised land. The country where dreams come true – United States of America!

After the first few years of relentless conversion from Dollars to Indian Rupees, you give up. Soon, kilometers become miles. Liters become gallons. And before you know it, kilogram becomes pounds.

But there’s one critical part of the financial equation that’s missing.

Investing your money.

Most Indians hold back because investing in the US can be complicated.

  • What if my H1B visa does not get renewed?
  • What if I lose my job?
  • Should I invest in an IRA or a 401(K)?

The concerns are valid. But that shouldn’t stop you from investing.

In this post, I will go over some of the practical tips to invest in the US.

If you decide to go back to India, you can withdraw your money by paying a 10% penalty + any capital gains taxes on your investment. In some cases, you can even choose to let it stay invested in the US or withdraw penalty-free if you qualify for an exception.

How should Indians in the US invest?

#1: Don’t delay. Start saving with an emergency fund

The first thing you need to do is to build up an emergency fund. Set aside at least 3 to 6 months of expenses. Use your bank’s saving or checking account to keep your money safe. You can also choose a CD (Certificate of Deposit).

The cost of not starting early can be pretty high.

The following chart shows how much $25,000 invested every year @ 7% returns, can grow to. A 5 year delayed start can mean as much as a $519K difference in returns.

return difference starting late investing in the US

#2: Max out your 401K

It’s essentially free money you are losing out if you do not max out your 401(K). It’s similar to Employee Provident Fund (EPF) offered by employers in India.

Not all companies offer 401(K) plans. And not everyone offers matching contributions. But if they do, max it out.

#3: Open an IRA

IRAs come in many flavors – Traditional, Roth, SEP, and Simple. For H1B holders, in most cases, Traditional or Roth would apply.

Contributions you make to your Traditional IRA are tax deductible. Sort of like the 80C tax saving investments you make back in India. However, with a traditional IRA, you are only deferring your tax liability. When you withdraw from a traditional IRA, your gains are taxed.

You contribute to a Roth IRA with your after-tax dollars. When you withdraw, you are not taxed on the withdrawals.

Refer to the Traditional and Roth IRA infographics to understand more about eligibility, contribution limits, and withdrawals.

Should I open a 401(k) and an IRA?

Yes!

Max out 401(K) first if your employer matches your contribution and then invest the rest in a Traditional or a Roth IRA.

#4: Open a taxable investment account – single or joint

With an annual maximum limit of $18,500 for 401(k) and $5,500 for an IRA in 2018, how do you invest the rest of your money?

Sure, you can invest in a bank certificate of deposit (CD), the equivalent of a bank fixed deposit in India. But with interest rates below inflation, they are not as attractive. The longer you invest your money into a CD, the more it loses its value.

You need to invest in the equity market. Unlike India, the equity participation in the US is pretty high. So there are a lot of low-cost options for you to invest.

The three main asset classes you can invest in are – stocks, bonds, and real estate.

You can invest directly in stocks or opt to invest through ETFs or mutual funds.

You can approach a broker like Interactive Brokers or TD Ameritrade to open a brokerage account. If you need financial advice and a fully managed account, you can open an account with an online wealth manager.

If you are looking for simple savings, you can choose a robo-advisor like Wealthfront or Betterment.

#5: Open a 529 college savings plan for your kids

The cost of college education in the US can be very expensive.

You can choose a 529 college saving plan or dip into your Roth IRA to fund your child’s college education. 529 plans are tax-advantaged while you’ll need to pay a penalty for early withdrawals from your Roth IRA.

#6: Be disciplined

It’s possible to get rich with only your salary and prudent investing.

Sylvia Bloom-Margolies amassed a $9 Million fortune working as a secretary. She bought stocks regularly and held on to them for a very long time.

You can make a fortune with a regular salary. Make sure you live within your means and invest in equities regularly.

Compounding works better with longer durations. If you have time at your disposal, make use of it.

Some things to keep in mind while you are in the US

#1: Are you sending money back home?

If you are sending money back home, be mindful of gift taxes and repatriation issues.

A simple workaround is to send money to your own NRO/NRE account in India and then send it to whoever you want.

#2: Don’t invest in India for a higher interest rate

Bank FD rate in India is now around 6%. In the US, a CD is around 2%. Makes sense to send the money to India and earn more interest, right?

Hold on. There’s a catch.

When you send dollars home, you convert it into rupees. The interest you earn is on the rupee. When you want the money back, you have to convert it back to dollars.

Based on historical data, over a period of time, for the same rupee, you get fewer dollars.

on 4 Jan 2014, the price of a dollar was Rs 45.351. On 27 May 2018, the same dollar will require Rs 67.435 to buy back. This means that $10,000 you sent home is now worth only $6,725 (assuming no growth). That’s currency value fluctuation acting against you.

My hypothetical analysis of the above scenario results in a profit of $3,495 on an initial investment of $10,000 over 14 years. However, this could vary wildly based on RBI rate changes, currency rate change, and other factors both in India and US.

For the geeks among you, refer to the concept of “Interest Rate Parity” to learn more about why interest rate differences do not matter.

Considering the marginally low potential to earn a profit, and the associated tax filing complexities, you are better off investing in the US.

What if I do not intend to convert the money back to USD?

It would still be better to invest in the US and convert to INR as required. Since USD is a reserve currency, liquidity for USD is higher compared to INR.

And who knows what could happen in the future? You might decide to retire in the US and not go back to India. Or you might decide to settle down in Europe.

#3: You will need to pay taxes and file the correct forms

Due to FATCA regulations, most Indian entities will report your investments in India to SEC. So don’t think you can skip paying taxes on your income.

Unless you invest in real estate in India, any investments/holdings in your bank account, brokerage, or mutual funds will be tracked and reported.

So make sure you file the appropriate tax forms.

I am not a tax expert. If you need tax help, seek help from a qualified tax advisor.

Over To You:

Are you an Indian living in the US? How do you invest? Share with me in the comment section below.

About Adarsh Thampy

Husband, practical investor, and product manager. Learned about investing the hard way by making several financial mistakes. Adarsh has built several financial products for both India and US investors.

You might like to read:

Why invest your money?
Why Invest Your Money?
Which are the best investment plan in India
The Best Investment Plan – Which One Do You Choose?
Mutual funds investment in india
How to Invest in Mutual Funds in India? The Ultimate Guide!

Reader Interactions

Comments

  1. Ram Charan says

    November 23, 2018 at 11:02 pm

    Hi Mr. Thampy,

    Your article is really helpful. I have a query regarding the emergency fund deposit. I am trying to put my emergency fund in high yield interest rate savings account. I am trying to put in CIT bank. But in the account application, the status is showing only two options i.e., US-citizen and Permanent Resident. I am a F1 student soon to be working on OPT. Can you suggest which bank is best for me for my emergency funds.

    Thanks
    Ram Charan

    Reply
    • Adarsh Thampy says

      November 27, 2018 at 3:17 am

      Hi Ram,

      If their online process does not show any visa types, then there might be a paper application or some other process. Lack of online opening process for your visa type does not mean that the bank will accept your visa type at all. you can call them and ask.

      Reply
    • Goutham says

      December 4, 2018 at 3:32 am

      Hi,

      I am in the same situation. You cannot open a high yielding savings account if you are neither a us citizen not a resident alien. It is not by law, it’s just the bank reserves right to deny. Let me know if you come across anything

      Reply
      • Adarsh Thampy says

        December 4, 2018 at 9:43 am

        Hi Goutham,

        Consider investing in a low-risk portfolio offered by online investment services?

        Qplum, the company I work for, offers a low-risk portfolio – Conservative.

        Other robo advisors like betterment offer a similar portfolio – they call it smart saver.

        This could be an alternative if you are unable to convince your bank to open a high-yield savings account.

        Reply
      • Govind Srinivasaraghavan says

        December 5, 2018 at 2:24 am

        That is incorrect. I am on a H1B and just opened a high yielding savings account with American Express, yesterday. Try calling your bank and ask what the problem is.

        Reply
  2. Sudesh Shetty says

    November 28, 2018 at 3:41 pm

    I accidentally stumbled upon your article in Google and loved reading it. It was really helpful.

    I have some funds in my Indian Bank account and also some investments in mutual funds. Does it make sense to consolidate this fund and convert to USD and invest in the US. I have no intention to go back to India (unless of course something changes in my visa situation that doesn’t let me stay in the US). I have not done any investments in the US and I am a little concerned about it, but I am also not sure where and how to begin as I am not a traditional investor. Is there any book you would suggest or any blog that will help to understand investing for an ideal Indian living in the US?

    Reply
    • Adarsh Thampy says

      November 29, 2018 at 5:54 am

      Hi Sudesh,

      If you do not intend to go back to India, I strongly suggest that you move your investments out of India and invest in the US.

      Does your employer offer a 401(k) match? If yes, starting on it would be the first step. You should also consider IRAs.

      Investing as an immigrant can be daunting. However, it’s not that difficult to get started. Please let me know if you’d want me to connect you with someone who can help you get started.

      Reply
      • Ashish says

        January 14, 2019 at 2:26 am

        Hello Adarsh,

        This was a nice article. I would like to get connected to someone who can help me with my investments.

        Thanks,
        Ashish

        Reply
  3. MS says

    January 5, 2019 at 7:10 pm

    Hi,

    Thanks for the article. It’s simple and insightful at the same time.

    I’m currently on H1-B, moving towards permanent residency. Am I allowed to trade stocks in the US?

    Thanks in advance

    Reply
    • Adarsh Thampy says

      January 7, 2019 at 3:58 am

      Yes, you are allowed to trade in stocks 🙂

      Reply
      • saurav prakash says

        June 1, 2019 at 6:26 am

        About 401k, what if withdraw the money bcoz say you move. You pay huge penalty. Is it still worth it?

        Reply
  4. Snehal says

    January 7, 2019 at 3:26 am

    Thanks for such a simple straight forward article. Investing in right institute is always a question for visa holder in US. I have some investments done via NRO/NRE account back in home but even with 401k I think I can do more. I am not literate enough ton IRA. What if your situation changes and go back to India in that case you end up paying penalty. Isnt it? Also how would you rate real estate in US as an investment. Does it not come with its recurrent expenses? love to hear any experience you may have.

    Reply
    • Adarsh Thampy says

      January 7, 2019 at 3:57 am

      Snehal,

      Thank you for sharing your thoughts.

      The question everyone on an H1B or L1 visa has is – “what happens if I go back?” The truth is, yes, sometimes, you have to pay the penalty. But that’s the risk you have to take for an uncertain future. It’s like investing in the markets- yes it’s risky. But usually, in the long run, it pays off.

      If you continue to stay in the US, then not investing will have a significant impact on your retirement savings. Are you willing to risk not having enough for your retirement?

      If you decide to move back to India, even after paying an early withdrawal penalty, you might still have a sufficient amount to live comfortably in India.

      Reply
      • Deepika says

        April 16, 2019 at 7:01 pm

        Hello Adarsh,

        Great article!! In continuity of this question do we really need to take out money from 401K when we finish H1B/L1 stay and settle back in India? Can we let 401K mature and pull out money say after 20 years or during retirement?

        Reply
  5. Addy says

    February 7, 2019 at 5:58 pm

    Hi Adarsh, great article! I have a question- If an employer does not offer any match on 401(k)’s, would you advice that one invests in it or rather invest through other options such as IRA, stocks etc? Thanks

    Reply
    • SATCHIT says

      December 16, 2019 at 2:37 am

      It makes sense to invest in 401(k) even if your employer do not offer match at all, since it is a free pre-tax money that you collect, there by reducing your taxable income.

      Reply
  6. Shack Kapoor says

    February 13, 2019 at 4:34 pm

    Hi Adarsh, this is super helpful. I’m in a unique situation and would really appreciate your two cents.

    I was in the US on F-1/OPT for a total of 5 years, and I was able to open a high yield account which has some of my savings. I didn’t get the H1B lottery and relocated to Europe through my company. My US bank assets remain (technically shouldn’t be allowed given that I’m not a US citizen or resident, but the banks don’t seem to mind from my experience so far).

    How risky is it to keep my bank accounts active in the US given my status? I still contribute a portion of my salary from Europe to my US account because I hope to go back to the US on L-1 next year. Is that okay to do? (Not sure if the US would tax me on my income abroad even though I’m not a citizen?) Would you recommend this? As you mentioned, I find the US banking and liquidity most stable and want to keep all my assets there even if I move around quite often

    Thanks so much

    Reply
  7. Ram says

    March 7, 2019 at 6:25 am

    Hi Adarsh,

    Thanks for the excellent article. Do you know if H1-B holders can invest in ETF’s from vanguard and such? What would happen to this account if I move back to India? Any suggestions on how to invest in ETF’s?

    Thanks for your assistance.
    Ram

    Reply
    • Nikhil says

      March 5, 2020 at 1:30 pm

      Hi,

      May I know if you managed to create the Vanguard account? May I please know if being on H1-B classifies you as an resident alien?

      Thank you,
      Nikhil

      Reply
  8. Jamie says

    April 12, 2019 at 6:43 am

    Thanks Adarsh! Very useful information. I’m currently in H1B visa and I was planning to invest in 529 plan for my 2 year old kid but when enquired Merrill Edge, they don’t do it for visa holders. Do you know which other good entities will help out visa holders. Also, can you suggest which plan in 529 is advisable? There seems to be lot of options. I understand this purely depends on ones needs but given my son is just a toddler and since i’m uncertain of what exactly to look for, can you generally advise. I’m put up in Portland, Oregon.

    Reply
  9. R. Jacob says

    May 3, 2019 at 2:15 pm

    Hi Adarsh

    your article has been of great help n the following FAQs too. I am Hoping to know some practical ways to invest from India to US. Cud u provide me with a helpful link ?

    Reply
  10. Omsri Uday Gade says

    May 18, 2019 at 9:05 pm

    Hey Adarsh,
    Excellent article, it is very useful for many beginners like me.

    Reply
  11. siddhesh says

    June 23, 2019 at 6:47 am

    Hi Adarsh,

    I graduated in Dec 2018 and I am working on my OPT. I have enrolled in Stock purchase plan via etrade. Which tax form do i need to fill for RSU’s and stock plans? W8BEN or W9?

    Reply
  12. Bulbul Reddy says

    June 23, 2019 at 2:10 pm

    Awesome and very timely article Aadarsh. Quick question/ or in-fact need your opinion. I have maxed out my 401K and now thinking about IRA or invest in real estate in India. In terms of short term gains i feel the investment in Indian Real Estate to be more valuable than saving for IRA. Ex, if i invest in Indian Real Estate for 1cr, in about 4-5 years i will double the investment as teh land prices are increasing. Would you still suggest going with IRA or US based investments or do you thinking the indian real estate market is a lucrative deal?

    Reply
  13. Harish says

    September 2, 2019 at 9:47 pm

    Hi Adarsh,
    I think there is a mistake in your math for the sending money to India calculation – the one where you get $3495 in return after sending $10,000 to India at the rate of 45.351 rs/usd. If you invest the Rs.4,53,510 in a FD with interest rate of 6% and let it compound over a period of 14 years you more than double your initial investment.

    Can you please clarify if this is correct?

    Harish

    Reply
  14. Chitra Tolani says

    November 22, 2019 at 12:55 am

    Thanks for your article.
    I just planned starting to investing in India. This article really gave me a new direction.
    Can you share more details about the Savings account that you mentioned above that is giving 7% interest rate .
    Because I am looking to open one and nowhere I can see interest rates higher than 2% in US

    -Thanks

    Reply
    • Adarsh Thampy says

      November 22, 2019 at 4:08 am

      Hi Chithra,

      7% savings rate is available in India. In the US, the best you can get is around 3%. Even in India, the rate has dipped to around 6% for most banks. In 2010, I remember opening an FD at 9.5% interest rate in India.

      The guaranteed interest rate is often pegged to inflation. So in developed economies, the interest rate will be lower. In developing economies, the interest rate is often much higher due to higher inflation.

      Reply
  15. Santosh says

    December 4, 2019 at 5:47 am

    Hi Adarsh,
    A nice article. Will you be in a position to help me here with some more clarity?

    1. If we move to US on H1 or L1 visa, can we continue our SIP investments in India Mutual Funds or we need to stop that? The LTCG Tax will be applicable in India or US?
    2. Which Bank in US gives 3% interest rate on CD / FD?
    3. Can you suggest a financial planner in US?

    Reply
  16. amit says

    January 15, 2020 at 9:32 pm

    Hi Adarsh! Great Article and very helpful and encouraging to invest.
    I have 2 questions:
    The notorious uncertainity regarding the H1B visa makes me wonder if it makes sense making investments that have 3 – 5 years locking in period, given that H1B extensions are for 3 years at a time.

    1. If I invest in bonds/ funds / stocks here, and I had to go back to india due to any H1B reason, can I keep the investment till it’s locking in period is over and withdraw / en cash it after going back ti India?
    2. Can I keep the 401k to grow, may be till retirement, even in an event of having to go back to India and withdraw it years later? Say I leave for india when I am 45, withdraw the 401k funds after retirement age thus saving on penalty and taxes on them. ?

    Reply
  17. neeha CG says

    July 16, 2021 at 2:17 am

    H1B Day Trading has brought a heated debt among many immigrants. You might be thinking of investing in the stock market but you are not sure if you can. At times, the thought of using your H1B visa for day trading sends chills down your spine.

    You wouldn’t want to end up on the wrong side of the United States government? Since the States has imposed a lot of rules and regulations to govern immigrants. You end up thinking twice about your financial market investment. But, did you know, you have a chance of making a passive income through day trading?

    Hence If you’re working on an H1b visa, you might consider buying into the United States securities market. Though before you get trading, there are few things you need to know about H1B-Day Trading.

    Reply

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