How to maintain and grow your US investments while living in Israel

Last Updated on July 5, 2024

The information contained in this article is for general educational purposes and should never be viewed as specific investment, tax, or legal advice.

Sometimes knowing where to start can be the hardest part. In this post, I will run through some of the best options available to investors living in Israel who want to maintain or open new investment accounts using US-based platforms. I will also cover some of the important mistakes to avoid.

Advantages of using US-based accounts

Cost

Over the last few years, the majority of US brokerages have eliminated most commissions/trading costs, reduced minimums, and dropped monthly maintenance fees. It is now basically free to open an account and start investing. Israeli brokerages on the other hand often charge significant commissions on every transaction, have high minimums to open an account (15-20K ILS) , and charge monthly fees just to keep the account open.

Ease of use/Service

Opening an account with an English language platform and American-style customer service can make for a far more enjoyable experience for many Olim. Feeling comfortable with your investments is a very important factor for long-term financial success.

Tax advantages

The following are common situations in which maintaining US based investments is usually beneficial. Speak to your accountant for specific tax advice.

• Olim within their first 10 years of Aliyah – Olim are generally exempt for a period of 10 years from Israeli tax and reporting of assets and income generated outside Israel. Accounts open at a US brokerage (such as Schwab, IBKR, etc.), even if opened using an Israeli address and ID, are considered “outside of Israel”, and therefore, passive income generated in these accounts from non-Israeli assets would be exempt from Israeli tax during the Aliyah tax holiday.
• Olim with retirement accounts – If you are making Aliyah with a US IRA, 401K, or other retirement account transferring those accounts to Israel could be a costly mistake. In most cases, you will sacrifice the tax advantages of those accounts and incur a huge tax bill. There are obviously huge benefits to making sure your retirement accounts don’t make Aliyah with you.
• Easy to avoid PFICs – US brokerage and retirement accounts give investors instant commission-free access to thousands of US based ETFs making it very simple to avoid PFICs (discussed more below). Many ETFs, mutual funds and certain types of managed accounts offered in Israel can present huge tax problems for US citizens. Many Investment Advisors working at Israeli banks are not aware of this issue.

Drawbacks of investing outside of Israel

Exchange Rate Risk

Investing in dollar-denominated assets such as US bonds exposes the investor to the real possibility that the shekel will strengthen against the dollar thereby decreasing the value of those investments. For anyone living entirely off foreign income and/or investments, fluctuation in currency rates can have a significant impact on your daily cost of living and investment returns.

For a full article on how to manage exchange rate risk, click here.

Less Accessibility

In general, funds in US brokerages and banks take longer to access than funds held locally in Israel. Using the lowest-cost options for exchanging dollars to shekels can add additional delays when transferring funds to Israel from investments abroad. Israeli banks scrutinize all incoming transfers to your account and there is a possibility that those funds will be flagged or frozen for review. Lastly, for those wishing to invest part of their Israeli salary in a US account, additional steps may need to be taken to exchange the funds and transfer them to their US brokerage.

It is highly recommended that you keep at least some of your savings/emergency funds in shekels in an Israeli account. Interactive Brokers (discussed below), has given some the ability to maintain investments in a US brokerage while still being able to access their funds fairly easily.

Reporting Requirements

Foreign earned income from a US brokerage (dividends, capital gains, etc.) is generally required to be reported to the Israeli tax authority after an Oleh’s 10 year tax holiday has concluded. Doing this often requires paying for the services of an Israeli accountant. Many Olim will need an Israeli accountant anyway for various reasons and this won’t be an added cost.

Others who don’t have any savings or income outside of Israel and are regular employees of an Israel company may not have any reason to file Israeli taxes and this is an added expense that should be considered. Luckily, robo-tax reporting services like Alfie which only charge 275 ILS per year seem to be significantly reducing the cost of this annual reporting obligation. 

If you are not sure if you should use a US or Israeli brokerage, check out our full article – US vs Israeli brokerage – which one should I choose?

Keeping a US mailing address after Aliyah

Because so many accounts and services are only offered to those who can verify a US address, many Olim choose to maintain a US address after moving to Israel. Some use a US address of a trusted family member while others pay for a virtual mailbox service such as iPostsal1, PostScanMail and St. Brendan’s Isle. Banks and brokerages generally require a recent bank statement, brokerage statement, driver’s license, or utility bill in order to verify your US address. Some financial institutions will not accept an address from a virtual mailbox service.

In general, once you live in Israel, you should not use this US address on your federal tax return. Maintaining a US residential address when filing taxes can increase the risk of a specific state demanding you file a state tax return. Speak to your US accountant for specific advice.

For more information on maintaining a US bank account from Israel, read more here.

Great Brokerages

Getting started can be as easy as opening and funding a new brokerage account. If you already have an IRA and/or a taxable brokerage account and are looking for a new brokerage you can always transfer all your assets from one broker to another using an ACATS transfer without having to sell your assets. (There may be a fee for this from the broker you are leaving, generally around $50 or less).

The following is a sampling of some of the best brokerage options for Americans living in or preparing to move to Israel:

Charles Schwab

One of the largest brokerages in the world, Charles Schwab is a favorite for many Olim with its combination of full brokerage capabilities and international banking features.

Pros

• $0 commissions on stocks and ETFs. No monthly or annual account maintenance fees.
• Robust support for international clients who don’t maintain an address in the US
• A no foreign transaction fee ATM/debit card included with account. Great for withdrawing shekels in Israel directly from your Schwab account using a local ATM.
• Easy to use platform
• Great customer support

Cons

• $25,000 minimum initial deposit for opening an International Account. (No minimum for opening an account with a US address)
• Shouldn’t deposit shekels. Extra steps/accounts needed to transfer funds from Israel to Schwab. Deposits in shekels will result in immediate conversion at an unfavorable exchange rate.
• Outside of ATM cash withdrawals, no cost effective method for transferring funds directly from Schwab to an Israeli bank account.

To transfer an account to Schwab, first open the exact type of account you are looking to transfer. For example, if you are looking to transfer a traditional IRA from a different institution, first open a traditional IRA in Schwab. Once your desired account is open, log on to your Schwab online portal, click on “Accounts” at the top left, and then click on “Transfer Account” in the dropdown menu – this will provide you the instructions you need to initiate the transfer.

Interactive Brokers

With a global focus and ease of transferring and exchanging funds to and from Israel and the rest of the world, Interactive Brokers has become one of the most popular options for American expats. For those looking to regularly invest some of their Israeli-based salaries, this is often the best option because of the ability to easily deposit and cheaply convert shekels to dollars.

Pros

• Extremely low commissions for converting currencies
• No minimum for opening an International account using your Israeli address
• No commissions on US stocks and ETFs for accounts opened with a US address. Low-commissions for accounts opened with an Israeli address. Some ETFs are completely commission-free in either account type
• No monthly or annual account maintenance fees
• Easy to transfer money to and from both Israeli and US banks
• Access to markets all over the world within a single account
• Ability to borrow funds against the value of your portfolio at very low interest rates.

Cons

• Many find the application process to be complex and intimidating
• As a platform built for professional traders, learning to use the account can be confusing at first
• Only 1 free withdrawal per month

For our guide on how to set up your IBKR account from Israel, click here. For IBKR’s complete instructions on how to transfer your assets from a different US brokerage to IBKR, click here.

Fidelity is another popular brokerage that offers regular accounts to US residents and international accounts for those who only have an address outside of the US.

Professional Advisory Services

For those who have an investment advisor or broker they work with – due to regulations, it is very possible that that advisor will no longer be able to work with you after you move to Israel. If you are interested in continuing to have your investments professionally managed after Aliyah, there are investment advisory services based in Israel that are able to maintain your US based accounts and manage your investment portfolio for you – as long as you meet their minimums and are willing to pay their fees.

Some of the firms in Israel that specifically offer these services to American Olim include: Lighthouse Capital, Maimon Wealth, Nardis Advisors, Pioneer Wealth Management, and Profile Investment Services.

Please research each option carefully before making any decisions.

Contributing to a Roth IRA

Funding a Roth IRA prior to Aliyah can be a great way to contribute towards your retirement while also potentially setting aside money that grows tax-free. 

Some Israeli accountants discourage contributing to a Roth because of the lack of clarity and risks around how Israel does or does not tax them. This is especially true for contributions made after Aliyah.

My general impression is that many accountants agree that as long as the issue remains a “grey area”, withdrawals from a Roth that was funded prior to Aliyah isn’t subject to tax when you are not withdrawing funds from it. There is broader disagreement on whether or not Roth withdrawals are taxable in Israel. I am not an accountant – speak to your accountant for specific advice. 

You must also ensure with your US accountant that you are eligible before contributing to a Roth IRA. If you exclude all your income using the Foreign Earned Income Exclusion or if you have a very high annual income, you likely won’t be eligible to contribute. If you have earned income in Israel and you are using the Foreign Tax Credit on your US tax return, you may be eligible.

Opening a Roth IRA is generally a very simple process and can be done online at most US brokerages, including the ones mentioned above. You can also easily transfer an existing Roth over from one US brokerage to another using the same ACATS procedure.

What investments you should avoid

There are obviously vast disagreements on what should be considered a good or bad investment. There is however broad consensus on several asset classes that Olim with US citizenship should avoid in most situations.

Municipal Bonds

Municipal bonds (“munis”) are debt securities issued by state and local governments in the United States. For a US taxpayer, one of the major advantages of munis is that the interest they payout is typically exempt from federal income tax. In exchange for this tax benefit, munis typically offer a lower interest rate than other similar bonds. Israel obviously does not recognize this tax benefit as they don’t derive any benefit from US municipal projects. If your Aliyah “10 years tax holiday” has passed and you own municipal bonds or muni bond funds you could find yourself with lower-yielding bonds without any of the tax advantages of those bonds.

PFICs

US citizens that own PFICs (Passive Foreign Investment Companies) such as non-US-based ETFs or Mutual funds outside of specific retirement and pension accounts in Israel could be subject to very punitive taxation and costly reporting requirements. Many US tax experts strongly recommend that all US citizens avoid any fund or account that could be considered a PFIC. In many situations, Israeli ETFs, mutual funds, and Kupat Gemel Lehashka’a fund will present a PFIC problem and a US accountant based in Israel should be consulted before such an investment is made.

Opportunity Zones

While generally only relevant to high-net-worth individuals, investing in an opportunity zone or an opportunity zone RIET under the current US tax code can present attractive tax incentives to a US resident. An Israeli who is or will soon be subject to Israeli taxation on foreign earned income will likely not be able to derive any of these tax benefits from making such an investment and may be taking on more risk without benefit.

Summary

There are many good reasons to use US platforms to maintain and grow your investments. Making Aliyah does not mean that all your savings need to make Aliyah with you. Planning in advance can make for a much smoother experience once you arrive in Israel. There are good options for maintaining or opening new US accounts here in Israel, even if you did not plan in advance.