H1b Visa Holder? Smart Investment Strategies For Your Savings

H1B visa holders are often faced with a dilemma: save their earnings or invest them? While saving is a more conservative approach, investing has the potential to increase their income and help them meet their financial goals. However, with investing comes the risk of losing money, and for H1B visa holders, there is the added concern of maintaining their visa status. So, what are the best options for H1B visa holders looking to invest their savings?

High Yield Savings Accounts

High-yield savings accounts are an excellent option for H1B holders to consider. These accounts offer an annual percentage yield (APY) that is about ten times higher than the national average rate of 0.45%. The best high-yield savings accounts have APYs ranging from 4% to 5% or more.

One of the benefits of high-yield savings accounts is that they allow your savings to grow over time without any additional effort on your part. Your money will earn more interest each month, helping you build your savings faster. Some high-yield savings accounts also offer features such as setting savings goals and linking to checking accounts, making it easier to manage your finances.

When choosing a high-yield savings account, it's important to look for accounts with high-interest rates and low service charges. Some accounts may require a higher minimum opening balance, so be sure to consider your financial situation when selecting an account. Additionally, some banks may only offer high-yield savings accounts to US citizens or permanent residents, so it's important to review the eligibility requirements carefully.

• Barclays Tiered Savings Account: This account offers a solid interest rate and has no monthly fees or minimum balance requirements. It also includes a tool for setting savings goals. However, Barclays does not offer a checking account, so you would need to look elsewhere for that service.
• SoFi Checking and Savings: This account combines checking and savings, with an APY of 4.20% on the savings portion. There is no minimum deposit requirement or monthly maintenance fee. SoFi also offers other benefits, such as direct deposit and the ability to earn up to $300 with direct deposit.
• CIT Bank Platinum Savings: This account pays 4.70% APY on balances of $5,000 or more. While there is a high threshold to earn the high rate, the minimum opening deposit is only $100, and there is no monthly fee.
• American Express High Yield Savings Account: This account is offered by the well-known credit card company and provides a competitive yield, a $0 monthly fee, and a $0 minimum balance requirement. American Express also offers a rewards checking account for customers who have their credit card.
• Forbright Bank Growth Savings: This account has a competitive yield that helps your money grow faster than a lower-rate account. There is no minimum balance requirement or monthly fee.
• EverBank Performance Savings: This account has a yield that is much higher than the national average, allowing your money to earn more interest each month. There is no minimum balance requirement to open the account.
• Capital One 360 Performance Savings: This savings account earns the same rate on all balances and has no minimum deposit requirements or monthly fees. Capital One also offers a checking account that earns interest and has no monthly fees.
• UFB Portfolio Savings: This account has a yield that is higher than the national average, resulting in more interest each month. There is no minimum balance requirement, but UFB Direct does not offer a checking account.

Health Savings Accounts

Tax Advantages

HSAs offer triple tax savings. Contributions to your HSA account are tax-deductible, reducing your taxable income. The funds in your HSA grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This means you can keep more of your money and save on your healthcare costs.

High Contribution Limits

HSAs have higher contribution limits compared to other tax-advantaged accounts like IRAs or 401(k)s, allowing you to save more for your medical needs.

Rollover Funds

Unused funds in your HSA account can be rolled over from year to year. You don't have to worry about losing any money you don't use, and your savings can continue to grow.

Investment Options

Many HSA providers offer investment options, allowing you to invest your savings in mutual funds or other vehicles to grow your savings over time. This feature makes HSAs similar to a second 401(k) and a powerful tool for building your retirement nest egg.

Portability

HSAs are portable, meaning you can take your account with you if you change jobs or leave your current employer. This flexibility ensures that your healthcare savings are always with you, no matter where your career takes you.

No Income Limits

Anyone can contribute to an HSA account, regardless of their income level. This makes HSAs accessible to a wide range of individuals and families.

Choice of Healthcare Providers

With an HSA, you have the freedom to choose your own healthcare providers, giving you more control over your healthcare decisions and ensuring you receive the care that best suits your needs.

Lower Insurance Premiums

HSAs are often paired with high-deductible health plans (HDHPs), which typically have lower insurance premiums than traditional health plans. This can result in significant savings on your health insurance costs.

Flexibility in Usage

HSAs can be used to pay for a wide range of medical expenses, including dental and vision care, which may not be covered by traditional health insurance plans. This flexibility ensures that you can use your HSA funds for a variety of healthcare needs.

In summary, Health Savings Accounts offer numerous benefits for H1B visa holders, including tax advantages, high contribution limits, investment options, and flexibility. By utilising an HSA, you can effectively save for qualified medical expenses and build a secure financial foundation for your future healthcare needs.

Investment Accounts

Creating an investment account with a brokerage enables H1B holders to invest in stocks, bonds, and money markets. You can sign up with a brokerage such as Robinhood or TD Ameritrade and start trading right away.

However, it's important to remember that using these accounts offers no tax benefits, and you'll need a social security number to open one.

• Stocks: When you buy stocks, you're purchasing a small ownership stake in a company. If the company grows, your money grows. Stocks are a good option if you have a higher risk appetite.
• Bonds: Bonds are financial instruments where you lend money to corporations or governments for a fixed period. The issuer will pay you a fixed interest rate on set dates (usually quarterly), and you get your money back when the bond expires. Bonds are among the safest investments but offer a low ROI. A good rule of thumb for how much to invest in bonds is to subtract 10 from your age and invest that percentage in bonds. For example, if you're 30, invest 20% in bonds and the rest in stocks.
• Money markets: Money market trading refers to trading in short-term debt investments. This can be a good option for investing your emergency fund instead of using a high-yield savings account. You can get started by investing in a money market fund such as the Invesco Premier Portfolio Fund.

Other Investment Options

In addition to investment accounts, here are some other investment options to consider:

• High-yield savings accounts (HYSA): This is a conservative way to invest your money with no risk involved. While banks in the US offer low-interest rates that may not keep up with inflation, HYSAs can still be a good option for emergency funds. You can open a HYSA with banks like LendingClub Bank and get up to 0.75% interest on your funds.
• Health savings accounts (HSA): If you have a High Deductible Health Insurance Plan (HDHP), consider opening a Health Savings Account. These plans typically have lower premiums, but you'll need to spend more on healthcare before the company starts covering costs. Employers often contribute to HSAs, and the money in these accounts is pre-taxed, so it's essentially free money for medical expenses. Depending on your provider, you may be able to invest your HSA funds in the equity market.
• Certificate of Deposit (CD): CDs are a low-risk, low-reward investment option. They offer a slightly higher return than HYSAs but may not beat inflation. Banks like Bank of America offer CDs.
• 401k retirement accounts: 401k accounts are a powerful tool for building wealth in the long term. Your employer will match your investment up to a certain limit, so it's recommended to invest at least enough to get the full match. You can't withdraw from a 401k before 59 and a half without paying a 10% penalty, but there are some exceptions, such as the "Rule of 55," which allows penalty-free withdrawals at age 55 under certain conditions.
• Individual Retirement Accounts (IRAs): If your company doesn't offer a 401k or if you prefer more control over your investments, you can open a traditional IRA or a Roth IRA. With a traditional IRA, your contributions are tax-deductible, and you pay taxes on the money when you retire. With a Roth IRA, you pay taxes upfront and then enjoy tax-free withdrawals in retirement. There are contribution limits for Roth IRAs based on your income and filing status.
• Real estate: Investing in real estate can be a great way to build wealth. As an H1B holder, you may need to hire a property management company to handle the legwork involved in owning rental properties. Another option is "house hacking," where you buy a house, live in part of it, and rent out the rest.
• Employee Stock Purchase Plans (ESPPs): Some companies offer ESPPs, which allow employees to purchase company stock at a discount through payroll deductions. You can sell this stock at any time, but you'll need to pay short-term capital gains tax if you sell within a year of purchase.

Real Estate

H1-B visa holders are restricted from engaging in activities other than those listed on their Labor Condition Application and Form I-129, which are filled out by their employer. This means that H1-B visa holders are not allowed to seek employment with another employer unless they have a concurrent H-1B.

However, this does not prohibit H1-B visa holders from earning passive income. Passive activities such as making financial investments or being a landlord are not prohibited under the H-1B visa.

If you are an H1-B visa holder, you can invest in real estate funds or syndications as these are considered passive investments. You can also buy and manage rental properties. The IRS considers rental property investing a passive activity.

If you are looking to buy a rental property, you can either pay in cash or take out a loan. If you are taking out a loan, you will need to meet certain requirements. Lenders will typically ask for at least two years of good US credit history, US employment history of at least two years, proof of employment authorization, and a valid H1-B visa with a validity of at least three years in the future or a high chance of visa renewal. The requirements for an investment property loan are often more stringent than those for a primary residence, and the interest rates are usually higher.

If you are considering investing in real estate, it is important to be aware of the risks. For example, if your visa is not renewed, you may have to manage your property from another country. Additionally, managing a property can be time-consuming, and you must ensure that it does not become a distraction from your primary job, as your visa status depends on your employment.

Before making any investment decisions, it is always recommended to consult with a qualified professional.

Retirement Accounts

Social Security

As a non-citizen employee, you will likely pay a mandatory 6.2% of your pay on the first $128,400 of your 2018 wages into the system while working in the U.S. Your ability to collect social security will depend on factors such as your immigration status at retirement, your country of residence, and where you live upon retirement.

Employer-Sponsored Plans (401-k, 403-b, 457)

Your employer may offer a retirement plan that provides various benefits. You can deduct up to a certain amount from your taxes each year, and the growth of your money is not taxed while in your account. Depending on the plan, you may need to make certain contributions to receive your employer's contribution. Some employers will match your contributions up to a certain percentage, which is essentially free money for your retirement savings.

Individual Retirement Accounts (IRAs)

If you are considered a resident for U.S. tax purposes (i.e., you have U.S. earned income, a Social Security number, and meet the substantial presence test), you may open a traditional or Roth IRA. The contribution limit for 2021 was $6,000.

Traditional IRA

You can contribute money that has already been taxed. Depending on your income, your contributions may be tax-deductible. Once your money is in the account, its growth is untaxed until it is withdrawn.

Roth IRA

Contributions are made with after-tax dollars, so there is no upfront tax deduction. However, qualified withdrawals are tax-free. To be qualified, the funds must have been in the Roth IRA for at least 5 years, and you must have reached age 59 1/2.

When choosing a retirement account, keep in mind that immigrants may not be able to rely on U.S. public retirement plans. Private companies can help immigrants manage their investments.

Frequently asked questions