A guide to investing for Indian workers in US

I came to the US in 2011, when my company sent me for an onsite assignment. I had the typical mindset of a desi guy on a work visa. To me, home was (still is) India and my stay in the US is temporary. As with any temporary events, we don’t do long term planning. I was happy with the salary I was getting, especially when I mentally multiplied it with the Indian currency exchange rate. For over two years, I paid the highest individual income tax rate and had zero protection against inflation for my US income. It took me a long time to realize the income and savings that I was missing out due to a lack of financial planning. Unlike in India, here you don’t have family or elders to guide you on these matters. I have now spent five years in the US and have gained some knowledge in financial planning that I would like to pass on to my fellow Indian workers in the US.


Depending on your length of stay and long term plan, consider the following ways to save or invest money:

         1)      401(K) – I did not join a 401(k) plan for over 2 years and missed out a lot. This is the most important and easiest money that you can make from day 1 in the US. 401(k) is a retirement savings plan that is offered by almost all companies in the US. This is similar to the Employee Provident Fund in India. A percentage of your monthly income can be allocated to your 401(k) account. Most employers make matching contribution to their employee’s 401(k) up to a certain limit. In my case, my company adds 50% more to my contribution, when I allocate up to 6% of my income. For example, if my monthly salary is $5,000, my individual contribution is 6% of $5000, which is $300. On top of this, my company will add 50% of $300, which is $150. So, my monthly 401(k) total contribution is $300 + $150 = $450. This money can be invested in a variety of Equity or Debt based mutual funds. Key benefits of a 401(k):

a.       The employer contribution (in the above example, it is $150 per month) is “free” additional income which you would otherwise miss out if you didn’t open a 401(k)

b.      Allocating a certain percentage of your monthly income to 401(k) before it reaches your hands, results in compulsory savings. This will really help you in a rainy day (read “old age”).

c.       By allocating your savings to mutual funds, you give it a chance to grow and counter inflation over the years. Otherwise, money sitting in the bank earns no interest in the US, in the current environment.

d.      The money you contribute to your 401(k) is tax free. You are taxed only when the money is withdrawn.

e.      Withdrawal Penalty worries: A lot of Indians worry about what will happen to their 401(k) money if they need to return to India. Don’t worry. It is very rare to lose money with a 401(k).  An early withdrawal (before you reach the age of 59.5) attracts a penalty of 10% of the value of your 401(k) in addition to your normal tax rate. If you are already gaining by an employer match (which is at 50% in the illustrative example I explained above), you will still come out with a gain. Also, if you need to return to India, there is no need to terminate your 401(k) unless you really need the money. You can easily keep the money invested in the 401k and let it grow over the years in the US. This part of your life savings can be in dollar denomination and be a great way to diversify your savings. The US has very little restrictions on fund flows. You should be able to withdraw and transfer the money to India (or any other country) at any time you need it.

       2)      IRA/Roth IRA – Some employers don’t offer 401(k) plans, especially small consulting firms. If you are in such a situation, you can open an IRA or a Roth IRA account. These are individual retirement plans with similar benefits as a 401(k). Several leading financial services companies, including Vanguard, Fidelity, etc offer this. Just google “IRA” or “Roth IRA” and explore the various plans offered.

     3)   Employee Stock Purchase Plans/Options – A lot of companies offer plans for employees to purchase their shares at a discount. Please be aware and subscribe to these plans. Once again, this is easy money that you shouldn’t miss out. However, as with any equity asset, you should put the effort to understand and monitor the asset. Know what you’re doing or consult a financial advisor.

      4)      College Savings Plan – Folks with a long term plan to settle in the US, should plan to save for their kids’ college education as early as possible. College Savings or 529 plans are offered by most financial services companies. This is a great way to save tax while saving up for your kids’ education.

      5)    Health Savings Account (HSA) – Most families have to spend out of the pocket for some medical expenses over the course of a year. By opening a HSA and contributing money to it at the beginning of the year, you can gain a tax advantage. The money you contribute to the HSA is non taxable. You are allowed to use the HSA money only for medical expenses. In case you fail to fully spend the HSA money in a given year, you can roll over the balance to the next year.

Once you have exhausted the limits of the above savings options, you should generally be in a healthy financial position. If you have a surplus after this, you may choose to invest in a variety of asset classes in the US or in India. I will write more on these various asset classes in future articles. One piece of advice to young (below 40 yrs) folks is: don’t be over cautious with your savings. If you want your savings to keep up with inflation, you have to take on some risk. That means moving away from fixed income to growth assets like equities. If you don’t, you will be at the mercy of the greatest risk to long term savings – Inflation.