If you worked in America before your move to Israel, chances are you have an IRA account. What should you do with this American account if you live an ocean away?
Should you transfer your retirement accounts to Israel?
An IRA is an “Individual Retirement Account.” There are several categories of IRA, including traditional, Roth, Simple, and SEP IRAs. The main differences between them relate to when taxes are paid. (Check with your accountant about your own situation since this article does not constitute tax advice.)
Another common type of retirement account in the United States is the 401(k), which is a “defined contribution” plan. Contributions to the account are deducted from your paycheck and you only pay tax on them when you make a withdrawal. Sometimes contributions are matched by employers, which make it an especially sweet way to save. 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. One reason is because the money invested can continue to grow. 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the savings and deposit them in Israel, depending on your age, you may be hit with penalties and taxes on the amount withdrawn.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 how retirement accounts are run and their tax status. 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.
To learn more, download the Profile Toolkit, a guide to handling your U.S. investments from Israel at: www.Profile-Financial.com/toolkit
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. 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