Can H1B Visa Holders Invest in Roth IRA? | The Wandering Nerds (2024)

Investment, just like working, is one of man’s primary focus. The aim to live a better life even after retirement is one of the sole reasons people invest in various schemes in the US. Even those who are not exactly permanent residents of the United States like those with an H1B visa are constantly in search of the right investment scheme for themselves. It is for this reason they often ask the question; Can H1B visa holders invest in Roth IRA?

The Roth IRA, also known as an Individual Retirement Account, allows people with an H1B visa to open in it provided they meet the conditions. It is in fact, one of the most participated investment programs by people with an H1B visa in the United States.

According toForbes,it is important that people who are in the US without a green card, like those who are on an H1B visa permit open an individual retirement account, IRA.Bank of Americacalls it a “get more out of your hard-end retirement” scheme, listing various reasons why it’s a strong option. In the rest of this article, we will provide you with interesting and beneficial information about this topic; so, sit tight!

What is Roth IRA?

Individual Retirement Account, IRA is an account that is set up to be used after retiring from active service by offering substantial tax benefits. This account is under the U.S. law that is not taxed upon disbursem*nt so long as certain criteria are met.

The main difference between the Roth IRA and other tax benefit retirement plans is that the account growth is tax-free and eligible withdrawals from the Roth IRA plan are also tax-free as opposed to the usual tax decrease on contributions to the retirement plan which is common to others.

According to theBank of America, the sooner you open an IRA account, the more time you have for your money to increase.

The Roth IRA investment scheme goes as far back as 1997 when theTaxpayer Relief Actwas introduced by Senator William Roth, the program was named after him.

The Roth IRA is also a personal retirement account that contains various investments in securities, stocks, and bonds usually through mutual funds. However, other investments from areas such as real estate are possible.

Also, the Roth IRA can also be a personal retirement annuity that is a benefit contract purchased from a life insurance firm.

According to a statistical report analysis provided byWikipedia, in the year 2000, 46.3 million tax-payers have in total IRA accounts worth $2.6 trillion as reported by the IRS – Internal Revenue Service and about $77 billion of that amount belonged to Roth IRA account holders. But by the year 2007, owners of IRA accounts had passed over 50 million in the number of taxpayers with $3.3 trillion already invested.

Roth IRA Investment Rules for Non-Citizen Nationals and H1B Visa Holders

As an H1B visa holder, you can open a Roth IRA account while you work and reside in the United States. However, there are some rules and requirements involved in opening the account. We’ll be showing them to you in the rest part of this section.

As a non-citizen or H1B visa holder, you can open and own a Roth IRA retirement account if you live and work in the country.

Below are some of the rules and requirements involved in the process:

• You can only open a Roth IRA retirement account if you have your SSN, social security number, or as an alternative, an Individual Taxpayer identification number also known as ITIN. The Social Security Number is usually issued to an individual by the social security administration. On the other hand, you can request your ITIN from the IRS.While in most cases you already have at least one of the two because your income earned is also a necessity and requirements to open a Roth IRA retirement account and most companies, businesses and employers only hire workers with a Taxpayer ID or a social security number. As an H1B visa holder, the essence for needing a Social security number or ITIN as a requirement for a Roth IRA retirement account is to enable your interest, gains, and dividends to be reported to the IRS. If you can provide your documents as an H1B visa holder that enables you to live and work legitimately in the U.S. you can apply for both ITIN and SSN.
• An H1B visa holder aged 70 and a half above is not eligible to hold a Roth IRA retirement account.
• You must have taxable compensation and not taxable income from the investment.

Roth IRA Withdrawal Rules and Limitations

Whether early or after retirement, when withdrawing from your Roth IRA account, there are rules, limitations, and penalties involved. Some of which include:

• If you decide to withdraw from your Roth IRA account earnings before reaching age 59½, you will have to pay the 10% penalty fee and also the calculated income rate tax on the amount you wish to withdraw. This is imposed by the IRA to discourage holders from using their savings before retirement.
• Withdrawal from your Roth IRA contributions at any time involves no tax or penalty.
• Withdrawing an amount that is equal to the amount you put into your Roth IRA account, the payment is not regarded as a taxable income or subject to any penalty.

According toNerdwallet, if you are younger than 59½ years old and you’ve owned an account for less than 5 years, when you withdraw, you’ll owe the 10% penalty and income taxes. The penalty and not tax income can be avoided if you meet one of the limitations:

1. Withdrawing around $5,000 due to the birth or adoption of a child.
2. Withdrawing up to $10,000 to purchase your own house.
3. If the withdrawal is for educational expenses.
4. If it’s for health insurance and you’re currently without a job.
5. If it’s due to an IRS levy.
6. If it’s due to a disability or made to a beneficiary after death.

If you’ve owned the account for 5 years or more you can avoid the penalty in all cases except 1, 3, 4, and 5.

However, If you’re 59½ years old or older, and have opened the Roth IRA account for 5 years and less when withdrawing, you’ll owe income tax but not the penalty on money withdrawn.

Lastly, if your 59½, have owned a Roth IRA retirement account for five years and counting or more, you can withdraw your money freely with no tax or penalty fee.

Advantages of Investing in Roth IRA for Non-Citizen Nationals and H1B Visa Holders

Before we do anything, most times, we think about the benefits first. It is this benefit that drives us to make a decision on whether or not to do that particular thing.

There are some notable advantages of the Roth IRA account for non-citizens and H1B visa holders and we shall be looking at them in the section of this article.

The Roth IRA account offers some key benefits for H1B visa holders and others ranging from. Tax-free retirement income to tax-free growth.

Tax-free retirement income/withdrawal:

When you start making a withdrawal in your retirement, you owe no money, not even on your savings. You get all your money.

Age withdrawal limit:

Unlike other retirement accounts available to H1B visa holders, the Roth IRA account allows users to keep their money for as long as they are alive and that means that it would continue growing tax-free.

Stress free access to your money:

You have access to your money whenever you really need it. The Roth IRA makes it easy for you to process your withdrawals.

Limitations of Investing in Roth IRA for Non-Citizen Nationals and H1B Visa Holders

According to theIRS, there are certain limitations associated with the investment on Roth IRA on both non-citizens and H1B visa holders.

We’ll take a look at them now:

• The total contribution you make to your account in a year cannot be more than $6,000. If you’re 50 years or older, $6,000.
• The number of years you will be spending in the US and uncertainties regarding the renewal of your H1B visa.
• The majority of non-citizens and H1B visa holders are less than 59½ and have owned their account for less than 5years, for this reason, they pay a 10% penalty fee on withdrawal.

Alternatives to Investing in Roth IRA for H1B Visa Holders

As an H1B visa holder, If the Roth IRA account is not a convincing enough investment, there are others which we would be showing be you below:

1. Investing in cryptocurrency or in the stock market is also a strong alternative. So long you do not do this as a professional job.
2. You can rent out your car for commercial use or otherwise. It is totally acceptable cause it is considered a passive income.
3. Just like in the above, you can rent out a room in your apartment on Airbnb which is totally permitted as it is a passive income.
4. Lastly, you could be an angel investor so long you’re not directly involved in the operation of the company. However, there are certain restrictions to becoming one, so contact your immigration attorney before you begin.