What should you do with your American IRA account (Individual Retirement Account) when you live in Israel?
Your initial thought might be to cash out your IRA account and transfer the funds to Israel. But considering the tax-deferred nature of an IRA, that might not be the wisest move.
Moving your retirement account to Israel may be expensive
IRAs are good vehicles for retirement saving because they let you defer paying American taxes on capital gains, dividends, and interest until the money is withdrawn. There are regulations about when and how you can withdraw funds. (Check with an accountant, as this article does not constitute tax advice.) Depending on your age, you may be hit with high penalties if you cash out the account and transfer the balance to Israel. Additionally, by transferring the proceeds to Israel, you, as an American expat, may need to report the assets held in foreign financial institutions to the IRS.
There is a solution!
Instead of cashing out your IRAs when you make aliya, consolidate them into one retirement account and leave the funds in America, where they can continue to grow tax-deferred.
There are two advantages to doing this:
- Avoid penalties and taxes incurred when you withdraw the funds from your IRA too early.
- American tax reporting becomes easier because your savings are still held in America. Keeping money in America means that you don’t need to add the account to your FBAR form.
The best way to manage your IRAs in the United States is to work with a cross-border friendly company that can help you from Israel once you make aliya. Profile Investment Services, Ltd. can help you buy/sell assets in your IRA just as American brokerage firms in the U.S. do. Go to Profile-Financial.com/money-aliya to learn more about what to do with your money when you make aliya.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published July 13, 2018. Updated September 2020.