diff --git a/README.md b/README.md
index 63ae90a80c5d..0a3470267205 100644
--- a/README.md
+++ b/README.md
@@ -49,7 +49,7 @@ docker run -it --rm --pull=always \
     -e SANDBOX_RUNTIME_CONTAINER_IMAGE=docker.all-hands.dev/all-hands-ai/runtime:0.17-nikolaik \
     -e LOG_ALL_EVENTS=true \
     -v /var/run/docker.sock:/var/run/docker.sock \
-    -v ~/.openhands-state:/home/openhands/.openhands-state \
+    -v ~/.openhands-state:/.openhands-state \
     -p 3000:3000 \
     --add-host host.docker.internal:host-gateway \
     --name openhands-app \
diff --git a/containers/app/Dockerfile b/containers/app/Dockerfile
index 59bd6968e917..127eb306f9ed 100644
--- a/containers/app/Dockerfile
+++ b/containers/app/Dockerfile
@@ -43,7 +43,8 @@ ENV WORKSPACE_BASE=/opt/workspace_base
 ENV OPENHANDS_BUILD_VERSION=$OPENHANDS_BUILD_VERSION
 ENV SANDBOX_USER_ID=0
 ENV FILE_STORE=local
-ENV FILE_STORE_PATH=~/.openhands-state
+ENV FILE_STORE_PATH=/.openhands-state
+RUN mkdir -p $FILE_STORE_PATH
 RUN mkdir -p $WORKSPACE_BASE
 
 RUN apt-get update -y \
diff --git a/frontend/src/components/shared/inputs/security-analyzers-input.tsx b/frontend/src/components/shared/inputs/security-analyzers-input.tsx
index e5e6d159cf9c..8eb04c3ae081 100644
--- a/frontend/src/components/shared/inputs/security-analyzers-input.tsx
+++ b/frontend/src/components/shared/inputs/security-analyzers-input.tsx
@@ -25,7 +25,6 @@ export function SecurityAnalyzerInput({
       </label>
       <Autocomplete
         isDisabled={isDisabled}
-        isRequired
         id="security-analyzer"
         name="security-analyzer"
         aria-label="Security Analyzer"
diff --git a/frontend/src/components/shared/modals/settings/settings-form.tsx b/frontend/src/components/shared/modals/settings/settings-form.tsx
index e56fdd795ded..e22d845846da 100644
--- a/frontend/src/components/shared/modals/settings/settings-form.tsx
+++ b/frontend/src/components/shared/modals/settings/settings-form.tsx
@@ -7,11 +7,7 @@ import { getDefaultSettings, Settings } from "#/services/settings";
 import { extractModelAndProvider } from "#/utils/extract-model-and-provider";
 import { DangerModal } from "../confirmation-modals/danger-modal";
 import { I18nKey } from "#/i18n/declaration";
-import {
-  extractSettings,
-  saveSettingsView,
-  updateSettingsVersion,
-} from "#/utils/settings-utils";
+import { extractSettings, saveSettingsView } from "#/utils/settings-utils";
 import { useEndSession } from "#/hooks/use-end-session";
 import { useSettings } from "#/context/settings-context";
 import { ModalButton } from "../../buttons/modal-button";
@@ -24,7 +20,6 @@ import { CustomModelInput } from "../../inputs/custom-model-input";
 import { SecurityAnalyzerInput } from "../../inputs/security-analyzers-input";
 import { ModalBackdrop } from "../modal-backdrop";
 import { ModelSelector } from "./model-selector";
-import { useAuth } from "#/context/auth-context";
 
 interface SettingsFormProps {
   disabled?: boolean;
@@ -45,7 +40,6 @@ export function SettingsForm({
 }: SettingsFormProps) {
   const { saveSettings } = useSettings();
   const endSession = useEndSession();
-  const { logout } = useAuth();
 
   const location = useLocation();
   const { t } = useTranslation();
@@ -98,7 +92,6 @@ export function SettingsForm({
     const newSettings = extractSettings(formData);
 
     saveSettingsView(isUsingAdvancedOptions ? "advanced" : "basic");
-    updateSettingsVersion(logout);
     saveSettings(newSettings);
     resetOngoingSession();
 
diff --git a/frontend/src/routes/_oh/route.tsx b/frontend/src/routes/_oh/route.tsx
index b23c23be20dd..9be13d8ad826 100644
--- a/frontend/src/routes/_oh/route.tsx
+++ b/frontend/src/routes/_oh/route.tsx
@@ -5,6 +5,7 @@ import { useGitHubAuthUrl } from "#/hooks/use-github-auth-url";
 import { useIsAuthed } from "#/hooks/query/use-is-authed";
 import { useAuth } from "#/context/auth-context";
 import { useSettings } from "#/context/settings-context";
+import { updateSettingsVersion } from "#/utils/settings-utils";
 import { useConfig } from "#/hooks/query/use-config";
 import { Sidebar } from "#/components/features/sidebar/sidebar";
 import { WaitlistModal } from "#/components/features/waitlist/waitlist-modal";
@@ -45,6 +46,7 @@ export function ErrorBoundary() {
 export default function MainApp() {
   const { gitHubToken } = useAuth();
   const { settings } = useSettings();
+  const { logout } = useAuth();
 
   const [consentFormIsOpen, setConsentFormIsOpen] = React.useState(
     !localStorage.getItem("analytics-consent"),
@@ -65,6 +67,10 @@ export default function MainApp() {
     }
   }, [settings.LANGUAGE]);
 
+  React.useEffect(() => {
+    updateSettingsVersion(logout);
+  }, []);
+
   const isInWaitlist =
     !isFetchingAuth && !isAuthed && config.data?.APP_MODE === "saas";
 
diff --git a/frontend/src/services/settings.ts b/frontend/src/services/settings.ts
index ceed34b4a17f..6b72750a27e8 100644
--- a/frontend/src/services/settings.ts
+++ b/frontend/src/services/settings.ts
@@ -1,6 +1,6 @@
 import { openHands } from "#/api/open-hands-axios";
 
-export const LATEST_SETTINGS_VERSION = 4;
+export const LATEST_SETTINGS_VERSION = 5;
 
 export type Settings = {
   LLM_MODEL: string;
@@ -45,7 +45,53 @@ export const getCurrentSettingsVersion = () => {
 export const settingsAreUpToDate = () =>
   getCurrentSettingsVersion() === LATEST_SETTINGS_VERSION;
 
-export const maybeMigrateSettings = (logout: () => void) => {
+// TODO: localStorage settings are deprecated. Remove this after 1/31/2025
+export const getLocalStorageSettings = (): Settings => {
+  const llmModel = localStorage.getItem("LLM_MODEL");
+  const baseUrl = localStorage.getItem("LLM_BASE_URL");
+  const agent = localStorage.getItem("AGENT");
+  const language = localStorage.getItem("LANGUAGE");
+  const llmApiKey = localStorage.getItem("LLM_API_KEY");
+  const confirmationMode = localStorage.getItem("CONFIRMATION_MODE") === "true";
+  const securityAnalyzer = localStorage.getItem("SECURITY_ANALYZER");
+
+  return {
+    LLM_MODEL: llmModel || DEFAULT_SETTINGS.LLM_MODEL,
+    LLM_BASE_URL: baseUrl || DEFAULT_SETTINGS.LLM_BASE_URL,
+    AGENT: agent || DEFAULT_SETTINGS.AGENT,
+    LANGUAGE: language || DEFAULT_SETTINGS.LANGUAGE,
+    LLM_API_KEY: llmApiKey || DEFAULT_SETTINGS.LLM_API_KEY,
+    CONFIRMATION_MODE: confirmationMode || DEFAULT_SETTINGS.CONFIRMATION_MODE,
+    SECURITY_ANALYZER: securityAnalyzer || DEFAULT_SETTINGS.SECURITY_ANALYZER,
+  };
+};
+
+/**
+ * Save the settings to the server. Only valid settings are saved.
+ * @param settings - the settings to save
+ */
+export const saveSettings = async (
+  settings: Partial<Settings>,
+): Promise<boolean> => {
+  try {
+    const apiSettings = {
+      llm_model: settings.LLM_MODEL || null,
+      llm_base_url: settings.LLM_BASE_URL || null,
+      agent: settings.AGENT || null,
+      language: settings.LANGUAGE || null,
+      confirmation_mode: settings.CONFIRMATION_MODE || null,
+      security_analyzer: settings.SECURITY_ANALYZER || null,
+      llm_api_key: settings.LLM_API_KEY || null,
+    };
+
+    const { data } = await openHands.post("/api/settings", apiSettings);
+    return data;
+  } catch (error) {
+    return false;
+  }
+};
+
+export const maybeMigrateSettings = async (logout: () => void) => {
   // Sometimes we ship major changes, like a new default agent.
   // In this case, we may want to override a previous choice made by the user.
   const currentVersion = getCurrentSettingsVersion();
@@ -68,6 +114,11 @@ export const maybeMigrateSettings = (logout: () => void) => {
   if (currentVersion < 4) {
     logout();
   }
+
+  if (currentVersion < 5) {
+    const localSettings = getLocalStorageSettings();
+    await saveSettings(localSettings);
+  }
 };
 
 /**
@@ -92,48 +143,5 @@ export const getSettings = async (): Promise<Settings> => {
       LLM_API_KEY: "",
     };
   }
-
-  const llmModel = localStorage.getItem("LLM_MODEL");
-  const baseUrl = localStorage.getItem("LLM_BASE_URL");
-  const agent = localStorage.getItem("AGENT");
-  const language = localStorage.getItem("LANGUAGE");
-  const llmApiKey = localStorage.getItem("LLM_API_KEY");
-  const confirmationMode = localStorage.getItem("CONFIRMATION_MODE") === "true";
-  const securityAnalyzer = localStorage.getItem("SECURITY_ANALYZER");
-
-  return {
-    LLM_MODEL: llmModel || DEFAULT_SETTINGS.LLM_MODEL,
-    LLM_BASE_URL: baseUrl || DEFAULT_SETTINGS.LLM_BASE_URL,
-    AGENT: agent || DEFAULT_SETTINGS.AGENT,
-    LANGUAGE: language || DEFAULT_SETTINGS.LANGUAGE,
-    LLM_API_KEY: llmApiKey || DEFAULT_SETTINGS.LLM_API_KEY,
-    CONFIRMATION_MODE: confirmationMode || DEFAULT_SETTINGS.CONFIRMATION_MODE,
-    SECURITY_ANALYZER: securityAnalyzer || DEFAULT_SETTINGS.SECURITY_ANALYZER,
-  };
-};
-
-/**
- * Save the settings to the server. Only valid settings are saved.
- * @param settings - the settings to save
- */
-export const saveSettings = async (
-  settings: Partial<Settings>,
-): Promise<boolean> => {
-  try {
-    const apiSettings = {
-      llm_model: settings.LLM_MODEL || null,
-      llm_base_url: settings.LLM_BASE_URL || null,
-      agent: settings.AGENT || null,
-      language: settings.LANGUAGE || null,
-      confirmation_mode: settings.CONFIRMATION_MODE || null,
-      security_analyzer: settings.SECURITY_ANALYZER || null,
-      llm_api_key: settings.LLM_API_KEY || null,
-    };
-
-    const { data } = await openHands.post("/api/settings", apiSettings);
-    return data;
-  } catch (error) {
-    console.error("Error saving settings:", error);
-    return false;
-  }
+  return getLocalStorageSettings();
 };
diff --git a/frontend/src/utils/settings-utils.ts b/frontend/src/utils/settings-utils.ts
index 9f0dfa24c9fd..bb4780d3019a 100644
--- a/frontend/src/utils/settings-utils.ts
+++ b/frontend/src/utils/settings-utils.ts
@@ -82,9 +82,9 @@ const saveSettingsView = (view: "basic" | "advanced") => {
  * Updates the settings version in local storage if the current settings are not up to date.
  * If the settings are outdated, it attempts to migrate them before updating the version.
  */
-const updateSettingsVersion = (logout: () => void) => {
+const updateSettingsVersion = async (logout: () => void) => {
   if (!settingsAreUpToDate()) {
-    maybeMigrateSettings(logout);
+    await maybeMigrateSettings(logout);
     localStorage.setItem(
       "SETTINGS_VERSION",
       LATEST_SETTINGS_VERSION.toString(),