I must admit, this title – Investing as a non-resident alien living in the US – seems a bit contradictory. How can you be a non-resident of a country when you actually live there? Well, it is possible when you consider in a tax perspective.
In fact, there is a group of people who are on non-immigrant visas in the US, allowed to work, but not being taxed as a “US person”. Even though they live in the US full-time, they pay taxes in the US only on a part of their income, as people who live outside of the US.
In the past, I have not written specifically for this group of people, even though I have friends and family falling in this category. They are international PhD students, visiting scholars, employees in foreign missions, and professionals in UN, IMF or the World Bank. It’s a large group of people in my social circle that seeks out my advice, since most US-based advisors don’t work with them. Now it’s time for me to write something just for them!
Investing as a non-resident alien living in the US
Below I’m going to explore some common questions I get about investing as a non-resident alien living in the US.
Note that in this post, I’m only discussing investing in securities in the public markets, and not real estate, private equity, or other non-stock / bond asset classes.
#1: Should I do it?
This is the number #1 question I get. Long-time readers of this blog know that I rarely give black and white answers. However, this is one of the questions that may have a relatively straight forward answer.
My answer is “probably yes, unless you have good reasons not to.”
Some of the good reasons might be:
- I don’t have extra money to invest!
- If I have a US account, it makes my home country tax reporting VERY complicated.
- I am already wealthy and have professionals managing money for me.
Note that I didn’t include “I’ll leave US one day” as a good reason, nor did I include “I don’t want to deal with the hassle of explaining my situation,” – two of the most common push backs I get.
In my opinion, one factor trumps these common concerns – the US offers the most cost-efficient options in the world to build a diversified portfolio as an individual investor.
If you are from a developing country, you’ll know what I mean. In most countries in the world, in order to buy stocks in some of the most well-known companies in the world, such as Microsoft, Google, or Apple, you need to go through a broker that charges high commission, have minimum balance, or even use insurance contracts. There are account maintenance fees, foreign exchange fees, and even performance reporting fees.
Or if you choose the route of using mutual funds or ETFs, you will be paying 2-3% in expense ratio, plus commission to the banks and performance fees.
In the US, on the other hand, you can open a brokerage account online, fund the account, buy stocks all with ZERO cost to you. You can purchase diversified ETFs that cover stock markets all over the world with expense ratio as low as a few basis points (or even zero, if you have access to this fund.)
Being able to easily open an account and invest in the world is a huge opportunity that you may not want to miss out.
#2: How do I do it?
Some people think it might be difficult to do because they’ve experienced difficulty opening bank accounts or getting credit cards when they first arrived in the US. It’s true that some custodians choose not to work with non-US citizens or Green Card holders. Nevertheless, there are several online trading platforms, such as Interactive Brokers and TD Ameritrade (which is becoming part of Charles Schwab soon), that will happily open an account for you as long as you are legally living in the US at the moment of account opening.
One extra step some NRAs in the US might encounter is applying for an Individual Tax Identification Number (ITIN.) For those who have other US taxable earned income, it’s possible you were required to get Social Security Number already, which serves as your tax number. If you don’t have any other US taxable income, then it’s likely you need to apply for an ITIN first.
(Already have an account? Go through the Rethink Investing series to help you decide what to invest in.)
#3: Should I use tax-advantaged accounts in the US?
If you have US taxable earned income, you may wonder whether you should contribute to IRA or employer sponsored accounts such as 401(k) and IRA. I’ve written about this decision in this post. It really depends on your assumptions on current and future global tax obligations.
On the other hand, you may be able to contribute to accounts such as Health Savings Account and 529 college savings even without taxable earned income. You likely receive no tax benefit upfront by contributing to these types of accounts. However, it’s possible there will be long-term tax savings for you depending on multiple factors, such as:
- How are these types of accounts taxed in your future resident country?
- What are your income projections?
- What does the tax treaty say?
It’ll take some work on your end to figure out whether using these special accounts is worth your while. If you don’t feel like dealing with it, just go with a normal taxable brokerage account and invest tax-efficiently.
#4: I’m leaving the US at some point. What should I do with my accounts?
I wrote about some of the considerations here. See point 2(A).
The main thing to keep in mind is to be able to find a custodian that allows you to declare you are a non-resident alien with foreign address. Where you move to is important. If it’s a country on the US Treasury OFAC sanction list, then it’s likely you can’t keep the account open. Every custodian also keeps a list of country that they will do business in due to local regulations.
The worst case scenario is that you are forced to liquidate your investments into cash and send it to another country. There might be some unpleasant tax consequences if this happens. However, your investment growth over the years may still be worth it. If the alternative is that you miss out on investment growth altogether, I might say that paying taxes is a small price to pay. (Not to mention that as NRA living outside of the US, you may get 0% capital gain tax treatment, as opposed to 30% when you lived in the US.)
#5: I’ve left the US but still have US accounts. What should I consider when deciding whether to leave the assets in the US?
There are plenty of factors to consider. I’d say it depends on the alternatives. If you are able to continue holding these assets in an account outside the US without incurring unfavorable tax treatment in the transaction or other negative consequences, then perhaps moving your assets to another jurisdiction works. That is, in the future, other countries also offer similar tax-efficient investment opportunities.
Another reason people might consider moving the assets away from the US is the potential high estate tax liability on US-situs assets for non-resident aliens. Instead of a lifetime exemption of 11.4 million US dollars, non-resident only gets $60,000. Beyond this exemption amount, Taxpayer pays graduated rates from 18% to 40%.
Summary
In the end, if you live in the US and have money to invest, starting an account in the US is generally a good move. Depending on your personal situation, you might need to consider various contribution / distribution strategies, tax treaty, and tax efficient asset allocation. More work, yes, but hopefully in the long-term they all pay off!
I'm Hui-chin Chen, a globetrotter & certified financial planner helping you manage your finances from afar and on the go.
very informative post. Two questions:
1) if non resident alien who lives less than 182 days in the US, all capital gains from mutual funds, bonds are not taxable? (as opposed to those who lives in US for more than 182 subject to 30%)
2) for non resident alien who doesn’t live in the US anymore but have asset. the exemption for estate planning of 60,000 can it be resolved/address with estate planning? through a trust for example since my kids are americans.
thanks a lot!
Hi coco, you will be considered a U.S. resident for tax purposes if you meet the substantial presence test. See pub 519 for the explanation of the test. Some visa classes as discussed in the article are the exceptions to this rule (live in the US full time but considered NRA for tax purpose.) There are definitely certain estate planning to be done in advance if your heirs are US citizens. One common way is to use the annual gift exclusion of $15,000 to reduce your eventual estate. Whether to use trusts or not is something you should discuss with a qualified estate attorney. Hope this helps.
Hey Mr. Chen!
Two quick questions. If my wife and I understand correctly, as F-1 and F-2 Visa holders, since we have been living in the US for more than 182 days while she is doing her Ph. D., we are subject to Capital Gain Taxes of a 30% over our gains if we liquidate our investments, right? We have been having a hard time finding the information because some sites say that Non-Resident Aliens aren’t subject to Capital Gain Taxes at all, but others say that, if we stay for more than 182 days, we are (like in a five-year Ph. D. program).
Also, if we are subject to taxes, does that mean that all of our Capital Gains on stocks, ETF’s, Mutual Funds, and Index Funds will be taxed at 30% if we open a brokerage account, hold those stocks for more than a year and then liquidate our investments, or we will have to pay taxes every year based on the growth of our portfolio, even if we haven’t liquidated those assets?
This is our first year living abroad in the US, and the Tax Code is not so friendly in terms of easily understanding it as a legal alien.
Hi Andres, when in doubt, only believe in IRS publications. Your question is clearly answered here:
https://www.irs.gov/individuals/international-taxpayers/the-taxation-of-capital-gains-of-nonresident-alien-students-scholars-and-employees-of-foreign-governments
In the US, you only consider to have gains when you sell. The mark-to-market regime you described sometimes apply to foreign investment held by US tax residents.
So in the case of an F1 visa holder that leaves the US after completing the degree, there is a clear advantage of selling US-based investments after departure. However, this may change depending on tax treaty between the US and your next country of residence.
Hope this helps. (Btw, I’m a Ms. 😉
Hi! On the Personal Finance for PHD podcast, you mentioned that technically international students living in the US can open brokerage accounts even when they’re not a US citizen if they have an SSN and a US address. However, I’m wondering… even if we can, is it generally discouraged? How wouldn’t the broker find out since we’d still have to file tax as an international student? What are the different considerations to keep in mind if I consider doing such thing? Thank you
It’s really on a custodian by custodian basis. When you try to sign up for the account, you’ll be required to certify your status. Some custodian allow non-residents to open account and will ask for your visa status, etc. Some will simply have a clause accompanying the application asking you to confirm you are a US person or citizen before you click “Submit” on your application. International student can be either “US person” or not. Just make sure you understand your status and do not misrepresent yourself on the application.
Hi Ms. Chen,
Thanks so much for such an informative article.
My husband and I have been living in the US for past 9 yrs on H1/H4 and have a 2yr old daughter (US Citizen by birth). We have been planning to move back to our home country (India). We own 2 homes here and also 401K (employer provided). We have been thinking wether liquidating our investments before moving is a better idea. We have mortgage on both homes but potential rental income can cover the mortgage. How will the taxation work if we decide sell the homes vs rent them while living abroad. Is selling is a better idea then, should we sell it while living in the US or after we move.
You are welcome! The answer you are looking for on keeping rental properties is in this post. For primary home, you qualify for $250k per person exclusion on capital gains, so if the house you currently live in now has appreciated a lot, that might be a consideration. Regarding what to do with retirement accounts, you may want to read this post.
Hello!
I have been trading with the robbinhood app, but want to expand. I have found it difficult for most trading platforms to accept my information. I have DACA and they keep requiring a visa. what can i do? or what should i input?
Hi leo, you may want to contact customer service to give you the final answer and to make sure they won’t close your account abruptly when they find out your status. Technically because your substantial presence in the US, you’d be taxed as resident alien, which may be enough to pass the scrutiny of the custodians based on contract language, but I’m guessing some may choose not to open account for people without visa. It’s best that in the account paper work you are categorized correctly on their end. Don’t try to open account online without reading through all the fine print. The worst case scenario is that you lose the current permission to stay in the country and have no access to the asset you build up. Most custodians will work with paper application when online one isn’t sufficient.
Thank you so much for all this information, it’s the first useful website I have found on this topic!
Glad you think so!
Hi Ms. Chen,
Thanks for all the useful information. I am currently a PhD student on a F-1 visa. I own some ETFs and I plan to continue investing while in the US. Unfortunately I may not be able to stay in the US after my program but I would like to keep the ETFs and sell them years later. In your experience is it possible to sell and transfer the funds to a foreign account later on? I am currently using Etrade.
Yes, but it depends on which country you go later and the custodian. It’s probably best to contact E-Trade directly and post that hypothetical question and ask for the exact process you’ll have to go through.
This is really helpful! I have a quick question about tax documents
I am a PhD candidate at a US university, but I am living abroad for the majority of the year. TD Ameritrade requires me to declare my tax status to avoid backup withholding, however I am not sure which document to provide. Should I be filling out W-8BEN as a nonresident alien? Thanks!!
Hi Fatih, whether you are considered resident or nonresident alien depends on multiple factors. You can go through the test on IRS website to decide whether you are considered resident alien. If not, then you are nonresident alien and should provide W-8BEN to TD Ameritrade.
Hi Ms. Chen,
This is the most informative post I have read on this subject – I am so glad I chanced upon it and thank you for writing it. I have a few specific questions that I hope you can answer:
1) I am a non-resident alien on an F-1 visa. However, this is my fifth calendar year in the US. My understanding is that even though I have stayed in the US for more than 183 days this year alone, NRAs on F-1 visas are exempt from the substantial presence test. This means I will become a resident alien next year. However, I am travelling to India for dissertation research in January and will only be back in June 2022. My visa will also expire in June 2021 and I will get it renewed before I return in 2022. So it looks like I will be an NRA this year, a RA next year (with expired visa and outside US), and a RA the year after most probably (once I get my visa renewed)? Given this uncertainty in immigration status, I was wondering if it’s a good idea for me to open a brokerage account this year? I really want to start investing but these are my specific questions: Will I still be able to access my account from India? Will I be able to make regular deposits? Will I be able to keep my account? How I will be taxed eventually? Should this uncertainty deter me from starting to invest?
2) I have been researching investment apps and brokerages and would like your recommendation on the best and most easily accessible between Fidelity, TD Ameritrade and Interactive Brokers if I’m mostly interested in starting with index funds or ETFs?
3) Could you please explain the difference between index funds and ETFs? And do you have any suggestions on how to make an investment for index funds? S&P 500, total stock market, bond market, international? How should I begin investing and what should the composition of my portfolio be?
Thank you so much.
I don’t think the uncertainty of visa status should deter you from opening account. However I’d make sure you open one with custodian that works with NRA overseas, even if you may end up a RA in the US. I am not able to give you direct advice on what to invest in here, but you may want to start with reading about the portfolio construction on Bogleheads. Hope this helps.
Hello. I am non resident Alien which my status is B1-B2 VISA also I have worked in the USA before and I have SSN which I have been taxed. Now I am planning to open a TD Ameritrade account which I can open it with SSN or without I don’t know. And I called TD Ameritrade couple of times to ask them how to ask them how to open an account one of them said with SSN one of them said without because you are non resident alien. I am very confused. Which one better to use my SSN or not. I am not allowed to work in the USA but I can trade. So please help.
Hi Hui-Chen,
Your blog has been very helpful. I chance upon your blog and very thankful for your kind sharing. May I clarify my understanding on ‘Capital Gain Tax’ from ‘Stocks Investments’ listed on USA stocks exhanges’ as an ‘International Student’ with F-1 Visa:
1. Irrespective of how long I have hold the stocks I need to pay 30% capital gain tax as long as I have stayed in US for 183 days or more during the year I sold my stocks.
2. At current pandemic situation most International Students are already back to home country and studying via online classes from home country. We are only in US less than 183 days. We sold our stocks while in US and continue to stay in our home country the rest of the year(182/183 days) after that. In this situation do we still need to pay the 30% capital gain tax to US ?
3. How about if I stayed in US 183 days, left US to my home country. I sold my stocks from my home country(while away from US). Do I need to pay capital gain tax to US.
3.Let’s say I have 5 stocks 3 stocks gains/profit and 2 made losses. Can I have gain tax deduction for the losses ?
Sorry for the many questions. Hope to hear your guidance soon.
Thanks very much
Amy
Hi Hui-Chin Chen,
Do F1 Visa holder. Can Capital losses* be used as deductions on the investor’s tax return, just as capital gains must be reported as income ?
*Realized losses occur on the actual sale of the asset or investment.
Hi Hilal, generally SSN is your tax ID for life, even if your tax status changes. This is so that the IRS can link all the previous tax filing to the same person. However, IRS also issues ITIN to foreign nationals without many questions, so I know some people choose to apply a new ID instead of using SSN. Nevertheless, SSN should suffice.
Hi Amy, this section from Publication 519 should answer your questions.
Hi Amy, as long as you count as nonresident alien for tax purpose and doesn’t meet the 183 days rule for the tax year, you don’t pay capital gains tax from stock sale. The default for nonresident alien is 0% tax on gains from capital assets. It doesn’t matter where you are physically when you make the transactions. The determination is made on the tax year basis. You do net the US-source capital gains and losses together to determine total gain. However, you don’t get to take deduction if there is net loss. See the link I posted in response to the other message. Hope this helps.
Hi Ms. Chen,
Finding investing information for nonresident aliens has been a struggle so far, so I greatly appreciate posts like yours.
My question: in your personal opinion, would you say that investing in index funds or other similar fund is a bad idea if I’m potentially leaving the US in less than a year? As I understand it, having to pay taxes or being forced to liquidate investments less than a year old could end up costing more money than it produced.
What do you think?
Thank you!
Hi JV, you only pay taxes if you make a profit. The main risk with being forced to liquidate investments is that you may need to sell at a loss, not to pay taxes. So far I haven’t heard any nonresident being forced to close an account and sell at a loss. Normally there is sometime for you to transfer your holdings to another custodian without selling.
Hi Ms. Chen,
Thank you so much for this article. This question might be redundant after everything I read but I wanted to double check on this. Since non-resident aliens are usually only allowed to make money in a specific way, what is specified on their visa, is this still perfectly legal?
From your article and the comments I read it sounds like it.
I am on a P3 Visa and only allowed to work in my line of work. I am in the middle of adjusting my status to permanent resident though. I’d like to get started on investing in the US but I’ve been worried that it wouldn’t be perfectly legal for me to do so. Any advice on this would be greatly appreciated!
Hi Kathrin, normally investing is not considered employment. Your investment income is not considered compensation for labor, so it’s not covered by the visa employment restrictions. It might be different if your profession is a trader, but it doesn’t seem like that’s the case. Hope this helps.
Hi Hui, this has been the most informative article I’ve found in regards to non resident aliens investing in the US. I’m an F-1 visa holder on OPT and I started investing in stocks at the beginning of the year. I’v been living in the US on F-1 status from 2016 so this year I’m considered a non resident alien for tax purposes. Next year when I file taxes for 2021, how will my gains from the stocks I have traded be taxed. I don’t own any stocks that pays dividends.
Hi Ms. Chen,
I am a f1 student, started working in a company. My company has sent me a Etrade details to activate. I am completely new to trading/stocks. While activating my Etrade account I have been asked about the citizen status.
I completed total of 2.5 years in USA. From Aug 2019 to till date(July 2021). I am not sure if I come under substantial presence. The following point from irs.gov confuses me.
“A student temporarily present in the U.S. under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa.” as stated in https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test
1. If I meet substantial presence, should I giving my status as resident alien.
2. If not, if I give as non-resident what is going to happen to capital gain tax.
3. If I meet the substantial presence, can I still call myself as a non-resident alien.
Sorry to trouble you with all the confusing questions. Very new to tax and related things.
Thanks in advance 🙂
Hi Patrick, if you got your F1 in 2016 then 2020 is the last year of your 5 year exemption. You will file as resident alien for 2021.
Hi Sofia, this is probably a bit late for you. In the same link you referenced, it says do not count days as presence in the US if you are an exempt individual. If you are only 2.5 year in under F1 visa with no previous history in the US, you will not meet the substantial presence test and will file as nonresident alien. Every non-citizen is considered nonresident alien unless they meet green card or substantial presence test. If you spend more than 183 days in the US and file as nonresident alien, your capital gains is taxed at flat 30%.
Hi Ms. Chen,
Thanks for the GREAT introduction! I just came to the US for grad school and am not gonna have an SSN for a while. Have a few thousand or so and am thinking about investing through some brokerage firms or robo-invest websites for safety (don’t wanna risk Robinhood). Could you explain a bit about the difference between those brokerage firms (like TD Ameritrade or Vanguard) and those online robo-invest companys (like Betterment, Wealthfront, Sigfig, Acorns…)? Am quite confused.
Thank you!
Great blog!
I’m a UK citizen & F1 non-resident alien looking into various robo advisors to see which will accept me. Emailing with Wealthfront, they say I meet their criteria (having a SSN, residing in the US), but that:
“Please note, a Form 1099 will be generated for all reportable transactions and tax filings must be completed in the U.S. We only support W-9 tax reporting, not W8-BEN. If you require a W8-BEN for non-resident status, we recommend using a different service”
I’m struggling to understand these requirements – does this basically mean they won’t be able to meet my tax reporting requirements as a NRA?
“Robo-invest” companies are investment advisors. They technically recommend the investments you should use and handle the trades for you automatically. Brokerage firms only transact your orders without giving you advice. That’s why the former usually charges a percentage of your balance to manage your investments for you. The latter is now normally free to use and keep the account open – they charge some fees and make money through other means.
Hi Tom, you are correct. They would not make mandatory withholding requirement for you and you should not use them. In order to sign W-9 form, you need to certify you meet the W-9 criteria, which you don’t.
Hi Ms. Chen,
Due to the pandemic and other circumstances I am unable to return to the US (work visa). It’s been over a year now and I don’t pass the substantial presence test anymore. I still maintain bank account and mail address in the US. What shall I do with my Wealthfront (and M1) account? Contact them and liquidate immediately?
Would appreciate pointing me in the right direction or recommending a professional who can consult.
Hi Rob, if your visa is still valid and planning to return after travel restriction eases, you can hold off liquidating the accounts. Just make sure you file 1040NR to report the dividend and interest. If you don’t expect to return, my guess is that when you tell Wealthfront and M1 you are overseas permanently, they will liquidate or allow you to transfer in-kind your holdings to another custodian that would open a trading account for NRA.
Hi Ms. Chen,
Thanks for providing us with such clear information.
I am currently living in the US with a L1 visa and I got approved a mortgae to buy a Duplex (one for me to live on and the other one to pay the montlhy intrest).
Could you help me understand if:
– During the years I live in the duplex I will not pay tax from the gain of the monthly rent because is being use to pay the mortgage right ? (apart from prioperty tax)
– When I leave the US and go back home, I wont have to pay taxes for the rent of both duplex? Even once I finish paying all the mortgage? (My country has no tax treaty with the US).
Would appreciate any information you could share with me.
Thanks!
Hi Tano, you always declare rent income on US tax return regardless where you live. The only way to not pay tax is when your expense is higher than rent income. Often mortgage interest (not the entire mortgage payment), property tax, plus allowable depreciation together will be higher than the rent income, so you don’t have “profit” to pay tax.
Hi Chin,
I am currently an f-1 student working. After a lot of searches, I was able to only find your blog that mentioned something similar to my queries, thanks for that. I have an employee-sponsored 401K account which I would like to hold in U.S if I return back to my country. Can I roll my 401Kto my IRA and hold my investments? Can you list all Brokerages that allow Ex-F-1 students to hold their brokerage and IRA accounts inside US and operate it passively?
Hi Ms Chen, thanks for this very informative post. It’s very helpful! I’m a diplomat on an A1 visa, and I tried to buy mutual funds online at TD Ameritrade without success. I called their customer service, and they said you need a permanent address in the US to buy mutual funds. Do you know if there is another way to buy mutual funds? Or another contractor you would recommend?
Hi Pablo, the better way forward is to buy ETFs (Exchange Traded Funds) in a brokerage account. They are correct that nonresident alien generally cannot hold US mutual fund shares. If you already have the TD brokerage account open, just couldn’t buy mutual funds, try to find ETFs that invest in similar underlying securities. ETFs are traded like stocks. For example, Vanguard offers mutual fund and ETFs that are the same fund, just different share classes.
Hi Sab, with no US connection, I think it’s easier to keep 401k account than a IRA. You can try Schwab or Interactive Brokers, but it’s likely they only accommodate US citizens with foreign address. Due to how the custodians segregate their business lines, I’ve only seen custodians making an exception to hold nonresident alien’s IRA, and not making it a standard practice.
Hello,
Firstly this is amazingly helpful! I have a question, for my US stocks and shares with my current company, if I am moving back to London to their UK subsidiary, fidelity gave me two options:
1) cash in my shares
2) transfer them over to an international fidelity account (as I am still with same employer)
What do you think I should do?
Hi Alicia, sorry I can’t give you advice on your specific situation over blog comment. You should consider your investment diversification, asset level, goals, tax liability in either countries, etc before you make that decision. Cashing in is selling the shares. I’d suggest you pay for advice if you are not confident you can consider all the cost and benefit related to the sale decision.