If you worked in America before moving to Israel, chances are you have an IRA account.
Should you transfer your retirement accounts to Israel?
An IRA is an “Individual Retirement Account.” There are several types of IRA (i.e., traditional, Roth, simple, and SEP), but the main differences relate to when taxes are paid. (Check with qualified U.S. and Israeli accountants about taxes since this article does not constitute tax advice.)
Another common type of retirement account in the United States is the 401(k). Contributions to the account are deducted from your paycheck and you only pay U.S. tax on them when you make a withdrawal. However, when you work in Israel, you normally cannot continue contributing to the plans (unless you are employed by an American company). However, if you had such a plan in the United States, you can often roll it over into an IRA and easily manage it from Israel.
Useless or useful?
Having American retirement accounts when living in Israel can be useful. If you were to withdraw the savings and deposit them in Israel, depending on your age, you may be hit with penalties and taxes on the amount withdrawn.
A second benefit of having American retirement accounts while living in Israel is that the savings are held in America, and that means easier reporting on American taxes. Your pension plans produce IRS-friendly tax reports so you save yourself (and your accountant) hours of paperwork.
Also, American retirement accounts are already in Uncle Sam’s purview, and therefore don’t need to be reported on FBAR forms.
Everything changes when you move abroad
If you made aliya, the incongruity of the tax laws in America and Israel create certain complications that affect retirement accounts. Work with an international brokerage firm that understands the regulatory requirements of dealing with cross-border clients. In this way, you get the best of both worlds. You can live in Israel – and still benefit from your American retirement accounts.
For more information about your U.S. dollar assets after you move to Israel, read: profile-financial.com/aliya
Douglas Goldstein, CFP®️ is the director of Profile Investment Services, Ltd. www.Profile-Financial.com He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published January 19, 2015. Updated January 2020