EP 9: Navigating the Alphabet: Work Visas and Investing in the U.S.
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Foreign nationals on work visas are very keen to take advantage of the U.S. Tax code when it comes to investing and saving for retirement and other financial needs.
They are looking to save for retirement, their kid's college funding and other financial goals.
Like American citizens, they would like to take advantage of the tax-advantaged accounts like 401k plans, 403b plans, Roth IRAs, 529 college savings plans as well as health savings accounts.
Unfortunately, due to the temporary nature of the work visas (they are all nonimmigrant visas), they face unique challenges that make it very difficult to accomplish these goals.
In this episode, your co-hosts Jane Mepham, CFP, and Manasa Nadig, EA, discuss the challenges that range from brokerages that won't open accounts to the lost benefits of some tax-advantaged accounts when moving overseas due to tax-treaties amongst other issues.
In the second half, they detail solutions that will allow you to invest in the U.S. on a work visa despite the fact that you may not know where you are going to be when you retire.
Jane and Manasa, started out on work visas, so they have lived out the exact challenges they discuss in this episode.
If you are a foreign national on a work visa - this episode is for you.
The views and opinions are those of the speakers and should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
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Speaker 1 (00:06):
Welcome to the International Money Cafe podcast, the show where we filter out the noise on cross-border taxes, finances, and life in the us. I'm your host, Jen Metham, CFP.
Speaker 2 (00:18):
I'm your host Ade. Yay. Join us on this journey as we explore these unique challenges facing us, inbound outbound families and businesses onto the
Speaker 1 (00:29):
Show. We have a very special episode today. There are thousands and thousands of workers who come to the US on different work visas every year, and we know this because Manasa and I were part of this group. These workers has come to the US to make a living save for their futures and educate their kids, so eventually give themselves a shot at pursuing the American dream.
Speaker 2 (00:58):
Exactly. And these are our favorite people to work with. Foreign born nationals here in the US on work squeeze us, right Jane?
Speaker 1 (01:09):
I know a hundred percent agree with you. And the thing we find is obviously, and these applies to everybody, the working years are the best years to save for the future using the provisions in the US tax code. So glad we have manasa here because when it comes to taxes, she's my favorite person. The problem is when you're on work visas, which by nature are temporarily, it becomes challenging when it comes to investing. Today we're going to talk about the challenges employees or non-immigrant work visas face investing in the US via the US special tax code provisions and there are very many of them. And then we'll also talk about possible solutions. Basically we want to address in challenges that you find investing in what we call special accounts like 401k Roth IRS type of thing.
Non-Immigrant Employment Work Visas
L-1 Visa
Speaker 2 (02:07):
Yeah, I love this topic. Yeah. Let's start out, let's just briefly talk about different work Wes, and then we can dive into it a little more as we go along. We are definitely going to be focusing on non-immigrant employment work visas today. Most of these are in the STEM space and we are going to skip over the G four if you're not aware. Dear listener, A G four visa is for employees of international organizations and they don't pay taxes, but they are considered as a resident for capital gains taxed tax and are taxed at 30%. But that's a brief about G four. We won't go into detail on that. I would like to start with the L one visa. The L one visa is a visa given to multinational business executives and specialized workers. These L one visas are employees of multinational organizations which have a footprint in the country where the employee is currently at as well as the United States.
Duration of L-1 Visa
Speaker 2 (03:20):
The duration of this visa is about five to seven years and they can be given to citizens of any country and there could be a dual intentionality and we can go into that a little more later. There is no cap on the number of L one visas that can be given out and there are some consequences If the person on the L one visa loses his job, they would have to leave the country in 60 days or less or find another job on an L one or an H one B visa or switch to some other non-immigrant visa. Did I cover everything Jane?
H1-B Visa
Speaker 1 (04:03):
I think you did and that's a great summary of the L one visa. So I'm just going to dive into one of my favorite visas because this is a visa that I think a lot of people are familiar with. This is the H one B visa. Okay. The H one B visa, basically you have to have a professional job offer and part of the requirement is the company has to be willing to pay the prevailing or higher wage. You have to have a bachelor's degree or it can be higher. And in terms of duration, it's normally three to six years. You may be able to get yearly extensions eve applying for a green card, which is based on status, which I think we'll talk a little bit later about. And in terms of countries, it can be from any country, but there's one very special type of H one B visa called H one B one visa, which is reserved for workers from Singapore and Chile.
Speaker 1 (05:03):
It behaves like a normal H one B visa with a few differences that again we can address at some point. You talked about the D dual intentionality of the L one visa, so the H one B is also a D dual intention visa. The H one B one is not. What this basically means is even though these visas are temporarily visas, you can apply for a green card and kind of go against the temporary nature of the visa, hence the D dual intentionality like tending to stay here if I'm able to get the green card is really what it comes down to. And in terms of caps, I think everybody is aware or has had about the 85,000 visas that are given out every year, but these actually includes what's called cap exempt employees. So if you're hired, let's say by the university or some nonprofit organization, then you don't go into the 85,000 number and by the way, I think it's 15,000 of these are reserved for people with master's degrees and kind of following the thing that you used, I'll talk about the consequences of a job loss because again, these are temporary visas.
Speaker 1 (06:17):
If you lose your job when you're on the H one B visa, you have to leave the country in 60 days or less. You have to find another job on an H one B visa or you have to switch to another non-immigrant visa. I think I've covered everything on the visa. I'll pass it back to you Mana.
O-1 Visa
Speaker 2 (06:37):
Cool Dean, let's jump on to the O one visa next. And I always try to remember the O one visa as the extra ordinary ability visa. That's how an O one visa criteria is given out. The duration of the visa is for about three plus years and it can be given to any person from any country. And the dual intentionality that Jane was talking about earlier, there is a possibility of that on the O one visa, but it does come with certain restrictions. There is again no cap on the O one visas and the consequences of job loss on this one again is they have to leave the country in 60 days or less or find another job under the same visa or an H one B'S visa or again switch to another immigrant working visa. Did I cover all of that correctly or is there something with the switching to another non-immigrant visa? Right.
TN-Visa
Speaker 1 (07:43):
It is correct. And actually the thing I was going to say is you called it the extraordinary visa at some point. This was actually called the Hollywood visa because you had all these celebrities. Somebody like a good example is I think Justin Bieber, he came to the US on an old visa. There's been a couple other Canadians, so it's extraordinary. It's also called the Hollywood type visa. So I think you've covered everything I know. Okay, let me jump to the TN visa. I actually have a couple clients I'm working with who on the TN visa? So the TN visa is granted to people from Mexico and or Canada only. Those two countries get the TN visa. The job has to be on what's called the NAFTA approved job list and these specific jobs that have to be on this list, it's not dual intent. So technically if you're on the TN visa, you can't really apply for the green card, but this is where we say if that's your intention, work with an immigration lawyer because they'll know how to get around this.
Speaker 1 (08:51):
There's no cap on this thing apart from obviously from being from Canada or Mexico. And if you lose your job on this visa, you have to leave the country in 60 days or less. You have to find another job. And this can only be on the TN visa or H one B visa, but in which case then you have to look into the monetary considerations. Remember I talked about the 85,000 thousands of people apply for this. Another option is to switch to another non-immigrant visa. I think I covered everything. I'll pass it back to you Manasa.
E-3 Visa
Speaker 2 (09:26):
Cool, thanks Jane. So the next visa we are going to address is the E three visa. E three visa is given only to people from Australia and I have a quick anecdote on this one. I had a couple of clients who were interestingly had migrated to Australia from India and eventually got their Australian citizenship and then had come to the US on an E three visa where they eventually got their green card and their US citizenship. So now they had a footprint in three countries. So that was always something that blew my mind. That's something about the E three visa. It's for only for people from Australia. There is a cap on that. There's only 10,500 visas on the E three that's given out at this time. The duration is limited to two years but it can be extended indefinitely, which is kind of an oxymoron I guess. But those are the rules and it can be extended indefinitely in two year increments. That's about the duration of the E three visa. It's given to people who come here on a special occupation. They have to have a bachelor's degree or higher. And again, if they lose their job while they're on this visa, they have to leave the country in 60 days or less or get another visa under the E three or switch to an H one B or some other non-immigrant visa. That's about the E three visa. Jane,
Speaker 1 (11:11):
I think we've covered them all. The one thing I do want to point out, and part of the reason why we're talking about when you lose a job on one of these visas because by nature they're temporarily, anytime something happens with these visa, there's always the possibility that you may have to leave the country. So this is why we talk about make sure you're talking with an immigration lawyer just in case you need to make some of these moves. These are moves I would not make on my own. So now that we've covered the visas, let's talk about the challenges these visa holders have with investing in what we are calling the special account as defined by the US tax code Manas, I'm just going to throw these right back at you. Do you want to talk about some of the challenges these folks face?
Common Question from Those on Work Visas: Should I Invest in Retirement?
Speaker 2 (12:00):
Yes. The question that I get asked most often from people who are on work visas are, should I invest in my 401k or 4 0 3 P, whichever is the work retirement plan that they are on. And because these are what we call future use accounts, which means that the money is meant to be left in the accounts for a long time. You let them grow, then you take them out at a later date depending on your situation at that time. Ideally you are in a lower tax bracket or if you are invested in a Roth, you don't even pay any taxes on these distributions most of the time. That's what a future use account is typically if you just continue to live here in the us. But if you are on a work visa, any of these work visas that we talked about, there is a chance that you may not end up staying in this country.
Speaker 2 (13:02):
This definitely becomes a challenge in terms of where you, you're going to go back to where you're going to retire, what are the different tax treaties with the countries where you might go back to, like I said earlier, I mean the example of this person who came from India to Australia to the us, that's definitely a challenge because now the world is open and you don't know where you will be. That's one of them. And kind of going off of that same theme, another challenge that I have seen are the lost benefits from tax advantaged accounts. Let me explain what I mean. If there's a country which has a tax treaty with the US and the tax treaty recognizes that retirement account as a retirement account in the country where you will be and you get the same tax deferred advantage as you would have if you had continued to live in the us, that's all great, but if you have moved back to a country where the tax treaty does not recognize this nature of the tax deferment of the US retirement plan, then basically you could be subject to double taxation.
Speaker 2 (14:18):
Not only in the US where you're taking this money out, but in the country where you're now living. That's one loss of a benefit. And then also the Roth aspect of a 401k or an IRA. A lot of the countries do not recognize the Roth as a retirement plan and therefore you may have already paid taxes on that contribution in the US but now you're in another country which does not recognize it. And again, double is that worth the contribution is what you might think about and that could be a challenge because of all these factors and a couple of others quick ones, the lost benefits of tax advantaged accounts are of course the HSA, the 5 29 plan which you'll be talking about and other such accounts. Jean,
Speaker 1 (15:15):
You've actually addressed a lot of the issues and the questions we see where people are like, should I save into a Roth account? And of course we have to say where you're going to be and they probably don't. But I think what you've kind of talked about is make sure you look at the treaties.
College Planning
So let me jump straight to college planning, which is a big, big deal with a lot of immigrant families coming to the US is when I think of a situation I came to the US to go to college, trust me, my kids are going to college. I get a lot of this question is how do we save for college? And if you're a US citizen, typically we say use the 5 29, which is great. The money grows tax free and the money comes out tax free. But when you're on a temporary work visa, there are couple challenges you face.
Speaker 1 (16:04):
One, you may have to go back to your home country after all this is a temporary visa, right? You may have to go back to your home country before the kids attend college. And remember, if you take the money out and not use it for college, you're going to lose the tax benefits. You're going to lose the gain. So that's a big deal if you have to leave the country before your kids go to college. Another issue I find is let's assume you are here once again and your kids were born back home, whatever back home is so would define them as being foreign born and you're not on track to get the green card for example. It basically means your kids don't have a US social security number or possibly an IT number. Remember you need a social security number or an IT to be a beneficiary of the account.
Speaker 1 (16:56):
So in a case where we think the kids are going to be able to become beneficial, it may make sense, but in this case it's a challenge if you find yourself in that particular situation. And then the other one I'm going to talk about is brokerage accounts. So everybody says invest, invest, invest, invest in the us which is all good. We love the US and we love investing in the us but the problem I find is the brokerage accounts or brokerage farms that simply refuse to open accounts for folks on work visas, you'll go to some of their websites and who can open an account? It says you have to be a US citizen or a green card holder. If you're here on any type of temporary account including the work account, they won't open a brokerage account for you. You situations, which is interesting, where you are working for company X, Y, Z, they're doing their 401k, which you're probably eligible for at X, Y, Z brokerage.
Speaker 1 (18:01):
You can get your 401k there, but if you go directly to X, Y, Z custodian or brokerage firm, they will not open an account for you. And the ones that do, they make you go through hoops with the amount of paperwork they request and we understand why. It's because of the Patriot Act and all that good stuff, but it's still a big issue. The other funny one I've found is I'll call the customer rep and the customer rep is not sure and they give you one answer. You call back tomorrow and they give you a different answer, which means you're forced to kind of call 3, 4, 5 times to figure out what you need to be doing with an account. It's probably time that we don't have, but it's just the nature of the issue.
Brokerage Accounts
And finally along the same lines, those brokerage accounts like the X, Y, Z custodian I mentioned they may let you open the account, but when you have to leave the country, remember again this is temporarily they make you close the account permanently or if they're going to lay you leave the account open.
Speaker 1 (19:11):
They actually make it very difficult for you to make changes to the account in future. You wouldn't face this if you are a US citizen. Let's see. I think that's it for the challenges. So I'll say let's just jump straight into the solutions. One of the solutions that we think about is you need to understand your visa type and this is going to help you in trying to figure out where to go with this account. So you want to make sure you understand the rules and regulations, so understand how long the visa is valid for, understand how you can make changes in your status, understand the dual intentionality of your visa. We mentioned I think the L one and the H one as being dwell intent, which means you can start your green card application while you are still in the country. And of course I think you'll probably understand this when we say make sure you understand your I 94 status when you come into the country this stamp that to say how long you can be in the country, make sure you look at that date and keep an eye on it because that really determines if for example, you lose your job when you have to leave the country by.
Speaker 1 (20:28):
And then if you're going to go down the green card path, make sure you understand priority dates. So man and I were talking about before we started recording that if you're from India and we both looked at the, I think it was the April maybe 2023 visa bulletin. The current priority date for EB two is January, 2011, China, I think it was June 8th, 2019, which basically means it's going to be a very long time before you get that green card. So you want to make sure you understand that and as you make your investing decisions, you're keeping that in mind. When am I able to get the green card, if I will? One of the things we always talk about is absolutely have a few immigration lawyers in your corner and not your company lawyers and I think you understand why we are saying this. So let's see. I think I've covered the main stuff. So Manas, how about I pass it back to you to talk about the 4 0 1 ks and the tax treaties and all that stuff as part of a possible solution?
Rules, Regulations, and Green Card Priority Dates
Speaker 2 (21:35):
Yes, thank you Jane. Yeah, I totally get what you're saying about the rules and regulations and the dual intentionality and the green card priority dates. Those are all things we definitely need to keep in mind when making financial and tax planning decisions. Which brings us to what we were talking about earlier with the employer retirement plans, the 4 0 1 Ks, 4 0 3 Bs, four 50 sevens, et cetera. When you are most likely not to continue to stay in the US later when your visa expires, et cetera. What do you do with the 401k? And Jane and I have talked about this a lot and we feel that the best solution really in these cases is to get that employer match. Remember we've talked about these on other episodes as well. That is basically free money. The employer is giving it to you for just having a 401k accountant contributing into it.
Speaker 2 (22:40):
So get the match if you are able to afford it, maximize your 401k, whatever the amount is for the year and also get that tax break because you may now be in a 32% or a 28%, who knows, you may be in the highest 37% tax bracket and this may be the only avenue you have to get that tax break should get that tax break. And also look at leaving the money in your 401k after factoring in everything that Jane said earlier about the different brokerages and whether they allow you to keep your account from overseas, et cetera, but consider leaving the money in your 401k till you turn 59 and a half depending on how old you are at this time, that may be quite a long time away or not, but it does give the opportunity for that nest egg to grow at least till you are in the us.
Roth Types
Speaker 2 (23:43):
And also it's very, very important to look at these Roth types, the Roth IRA, the Roth 401k, the Roth 4 0 3 B because everybody talks about Roth, it's the most popular. The next best thing to slice bread like they say in the us, oh that's the Roth, are you doing the Roth but are you a person on a non-immigrant visa? Then work with a professional. We keep saying this ad nauseum, work with a professional, find out if a Roth is a good opportunity for you. Should you go back to the country you're from Again, like we were talking about earlier, what does a tax treaty say? Will that country where you're planning to go back recognize the Roth as a retirement plan and let you take the same tax deferred status? And also there are nuances or you may have saved money in the US and now you're taking that money out after you turn 59 and a half, maybe you're not paying taxes but you are in the country where you live and this is why working with another professional who can look at all these nuances, it's a great solution especially when dealing with numbers in your 401k and 4 0 3 B, which don't get me wrong, I totally understand this is all hard earned money that you have put away hoping for it to grow and become a nest egg.
Speaker 2 (25:10):
So I'll pass it back to you. Jane, what do you say?
529 Accounts
Speaker 1 (25:14):
I think you've said enough about that. So I'm just going to jump straight to one of my favorite accounts, the 5 29 in terms of solution. When people reach out to me and say, oh, what do we do with this? Again, this is just for educational purposes, it's not specific investment advice, but one way to think about it is if you are going to be in the US somehow your kids were born in the us, they're going to go to school in the us. Okay, then it makes sense to do the 5 29. The other thing to consider is there are very few schools which are on what we call the foreign approved lease. So they're foreign schools, colleges where you can use the 5 29. So your kids just being born in the us remember they have to be beneficiaries in the US and you're from X, Y, Z, they're going to be going to the country and there's a college or university there and it allows a 5 29.
Speaker 1 (26:19):
Okay, then it probably makes sense to go ahead and do it. For example, man and I were talking about a client who the kids were born in the us he's from India, he's a citizen, he's moved back to India and right now the sand is attending an approved UK university which allows the 5 29 to be used. And of course like I said, because the kid was born in the US it obviously means they already have a social security. So very narrow case use of where you can use this. If again, your kids don't have a social security or IT number, it's probably just best to kind of skip, I hate to say some of these accounts despite the tax benefit advantage that you get from them in terms of a bigger solution even for the college savings, your best bet really is to make sure you have a brokerage account.
Speaker 1 (27:16):
This is the one account we recommend to everybody that reaches out to us. Where you open it is a different case, but truly have a brokerage account because remember, if you leave the money there for more than a year, you only tax on the capital gains at something like 15% depending on your income bracket. Use a brokerage account. The two brokerages that we have experienced and we know will open accounts for folks on work visas. One is Charles Schwab and Interactive Brokers. Those are the two that seem to be friendly to folks who on work visas, basically people who are here on a temporally basis. The other thing we talk about with some of this, if you end up having to leave at some point, you may leave the country if you don't get your green card is consider having a US address if you're moving outside the US but also understand whatever the brokerage fund, they may end up putting restrictions on your account.
Speaker 1 (28:19):
Just be prepared for that. In terms of solutions, I think the thing I talk about or we talk a lot about is stay flexible, as flexible as possible, which means you could come to me, we'll talk about a seven solution and next year we end up changing it. So please, please, please stay flexible and then you really need to stay up to date with changes in immigration, especially as far as your type of visa is concerned. So make sure you know what's happening, especially with the political climate. We know there's going to be changes in the next one, two years, so please make sure you understand what's happening. If they make changes to what happens with your Visa type, please make sure you stay up to date with those changes. Can you think of anything else Manas to add to this?
Speaker 2 (29:12):
No, these were great. All of them were absolutely fantastic. One quick thing that I do want to point out is a 5 29 plan tax benefit is usually restricted to state taxation, so that's something to consider, but of course that brings us to the end of this great episode. But what I would like to say in conclusion is yes, stay up to date with all tax law changes as it applies to foreign nationals. Yeah, so dear listener, I hope you found this episode to be as useful as we were hoping that it would be. And if you like this and like our content, please share. Please subscribe on your favorite platform and let all your friends and family know please like us on social media. Thank you. Bye.
Speaker 1 (30:09):
Thank you. Bye.
Speaker 3 (30:10):
Thank you for listening to the International Money Cafe podcast. The content is for informational and educational purposes only and should not be used as a substitute for professional advice. Seek the advice of your qualified service provider with any questions you may have regarding your cross border finances and tax needs.