Earlier this week, I celebrated my 33rd anniversary of living in Israel. While 33 years may be considered an old-timer, this week also marked the touchdown of a Nefesh B’Nefesh (NBN) charter flight, bringing 225 olim (new immigrants) to Israel.
There were 125 children on the flight. Truly amazing. When I heard that number, I remembered a story that took place more than 20 years ago.
We were on vacation in Seattle and went to the synagogue on Motzei Shabbat. Rabbi Shalom Gold, z”l, also happened to be in Seattle, and we were talking to each other as we entered the synagogue. Suddenly, someone approached him and said, “Rabbi, you guys in Israel have a real demographic problem.”
Rabbi Gold cut him off and, in his very unique way, said, “Humm. We have a demographic problem? Well, you know, it takes nine months to have one child, but if you got on a plane with your family and made aliyah, we’d have six more people as soon as you arrive. You are the solution to ‘our’ demographic problem.” And then he walked away.
Kudos to NBN co-founders Rabbi Yehoshua Fass and Tony Gelbart and the entire staff for the incredibly hard work they put in to make this happen. It’s not just this flight, but more than 1,000 olim are expected in August. More than 7,000 have made aliya since the October 7 massacre. Truly inspiring.
For olim “living the dream,” once the euphoria of the new move wears off and reality sinks in, one of the questions that is often asked is how they should approach their new financial situation. Should their money make aliyah with them?
What to do with your investments?
Many US brokerage firms are no longer servicing clients with non-US addresses. I get a lot of calls from people who received the “find another firm” letter. What this means is that someone who has an investment account with one of these firms and has an Israeli address on the account has approximately 30 to 60 days to move their account.
For olim, this can cause quite a shock. Most olim take the first few months of aliyah to settle their families, help their children adjust to new schools, and look for employment. They tend not to want to focus on their investments, but they are thrust into this situation of having to find a new solution for their money.
If you receive this letter, take it seriously. I know many people who didn’t pay attention to the letters and had their accounts moved to unclaimed property. Others have had accounts liquidated, creating an unnecessary capital-gains tax bill.
Bring your money to Israel
I receive many calls from individuals who want to bring most or all of their money to Israel. While that may be a “rah rah, go Israel” Zionist approach, in practice, it’s not so easy. With regulations such as the Foreign Account Tax Compliance Act (FATCA), many local banks will refuse to deal with American citizens regarding their investments.
If they will deal with you, then you will need to be careful how you invest, because certain Israeli investments, such as mutual funds, may be subject to prohibitively high tax rates in the US due to Passive Foreign Investment Company (PFIC) rules. This basically leaves you with having to invest in individual local stocks and bonds.
For most olim, this is a nonstarter, as they are not familiar with the local stock market. Nevertheless, if you are going to invest locally, make sure you speak with an accountant first to learn what can and what can’t be bought.
It’s also important to keep your IRA (individual retirement account) in the US. Investors don’t always realize that if you close out your IRA, not only are you potentially looking at withholding taxes, but IRA withdrawals are treated as income.
So, if you were to liquidate the entire IRA, that could cause a huge tax hit. That also applies to those thinking about funding a local real-estate purchase with funds from a 401k or an IRA. Many individuals are unaware of these issues, and mistakes can be quite costly.
Profit from real estate?
Many olim have sold their homes in North America. Even after accounting for a new purchase in Israel, they are left with large sums of cash. Many olim also have individual, joint, and IRA accounts in the US. It makes sense to leave this money in the US.
If you are a do-it-yourself investor (DIY), then managing your own money from Israel is no big deal – except for the non-US address issue. But what if you want to use a professional to advise you and manage your funds? Should you look for someone in the US or someone local?
If you have someone that you know and trust in the US, then it may make sense. If you choose someone based in Israel, make sure they are licensed both in Israel and in the US. There are a lot of “advisers” running around under the radar screen without the appropriate licenses, pitching all kinds of investments and giving seminars and advice that may or may not be in your best interests. So, be careful.
Welcome to Israel.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates. Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. aaron@lighthousecapital.co.il