When you make aliya, what should you do with your retirement and savings plans? Should you leave these assets in your country of origin or transfer the accounts to Israel?
Transferring your accounts to Israel can be tricky.
As a new oleh, you might want your money in the same country as you are in, but be aware that withdrawing money from foreign retirement savings accounts and bringing the money to Israel may trigger tax bills and other penalties… in both countries.
While I am not a tax advisor (see a qualified advisor who is versed in cross-border finances), I have over two decades experience in helping Anglo olim manage and maintain their U.S. brokerage accounts from Israel. Increased anti-money laundering legislation makes it more difficult to maintain investment accounts in a different country than your residential address. However, maintaining a U.S. brokerage account (with an IRA, 401(k) and other tax advantageous plans) can be crucial to a financially successful aliya.
If you have retirement funds in America, you do not need to move your accounts to Israel. Indeed, by taking the money out of IRAs and bringing it to Israel, you might create an unexpected tax bill. Along with having to pay tax on the amount you transfer, you may also get hit with a 10% penalty for early withdrawal. I generally advise olim who have IRAs to leave the account with an SIPC-insured brokerage firm. If you are British and have a PPS (private pension scheme) in the U.K., you can only withdraw money from certain schemes from age 55 onwards, except in special circumstances. So if you are younger than 55, you may have to leave it in the United Kingdom. If you are over 55, withdrawing the funds may be possible. But before you do, consult with a tax professional who is expert in British tax laws regarding pensions.
Aliya and your financial plan
If you created a financial plan while living in your home country, you need a new post-aliya plan. Choose a financial planner who is familiar with both your investments abroad and cash-flow in Israel to guide you through this process. When it’s time to implement the new financial plan, choose a local firm that provides quality service while holding your account overseas with the familiar investments (stocks, bonds, mutual funds, CDs, etc.).
Don’t have a financial plan? Get to work on it right away, since that will be the blueprint for your successful financial aliya. Your post-aliya financial plan should take into account currency diversification, and geographic diversification, as well as shekel investments. (Americans should watch out for investing in Israeli mutual funds through their bank, since the IRS considers these investments PFICs.)
How much money should you bring to Israel?
New olim should consider how much of their savings is optimal to convert to shekels. After all, your new life is in a shekel-based market. Determine your cash-flow needs and make sure your financial plan’s asset allocation takes into account transferring money internationally. Since the focus of your new life, salary, checking account, and new pension plans are based in Israel, having geographical diversity (by keeping your existing pension plans overseas) may be prudent. At the end of the day, know that you have choices about where to place your funds and that it is both technically and legally possible to handle your U.S. or U.K. investments from Israel, even though the actual assets remain in your country.
Figuring out Israeli banks and fees
Israel’s banking systems are different from those abroad. For the most part, you don’t receive interest on your checking account, even if you maintain a minimum balance. Another difference is the lack of the equivalent of FDIC insurance on Israeli bank deposits. Israeli banks also have different fee structures, so ask what services you’ll be paying for, and compare different banks to find the one that looks like it will give you the best services. You can vote with your feet. Don’t open an account if you don’t feel you are getting the attention you deserve.
Foreign investment income
One of the best deals new olim and returning citizens have in coming to Israel is a tax break on foreign investment income. For ten years, capital gains, interest, and dividend income received from overseas investments aren’t subject to Israeli tax (though you will need to pay tax on it in your country of origin). As with all tax rules, though, there are many details that you should understand, so be sure to consult with a local tax advisor for further details. Shlichim may have given you informal advice, but since they don’t know your complete financial picture and aren’t experts in the ever-changing tax code, it’s wise to meet with an Israeli tax professional who has expertise in foreign investments for a review of your personal situation.
More useful information
Sorting out financial issues out your finances when you make aliya can be quite perplexing. Contact us and see how we can help you.