As originally appeared in The Jerusalem Post, August 18, 2016.
I want to start out by sending big congratulations to Nefesh B’nefesh as they celebrate bringing 50,000 olim to Israel. That’s a huge number and if you think about it, it’s the equivalent of bringing a decent size city to Israel. Truly remarkable. For olim once the euphoria of the new move dissipates and reality strikes one of the questions that is often asked is how should they approach their new financial situation.
Many US brokerages 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 address outside of Israel has 30-60 days to move their account. For new 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 are thrust into this situation of having to find a new solution for their money. As I tell people who call me after receiving the letter, “I love Merrill Lynch as they have been major contributors to the growth of my practice!”
If you receive this letter take it seriously. I recently opened an account for a couple that had neglected to adhere to the warnings and their stocks were actually sent out of their brokerage firm and to make a long story short, they had a huge mess on their hands.
Bring it 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” Zionistic approach, in practice it’s not so easy. With regulations like Foreign Account Tax Compliance Act (FATCA), many local banks will refuse to deal with American citizens vis-à-vis investments. If they will deal with you, then you will need to be careful how you invest as certain Israeli investments like 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 non-starter as they are not familiar with the local stock market. Nonetheless, if you are going to invest locally, make sure that you speak with an accountant first, in order 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.
Profit from real estate?
Many olim have sold their homes in North America, and even after accounting for a new purchase in Israel, are left with large sums of cash. Many olim also have individual, joint and IRA accounts in the US. In the past many chose to bring most of their money to Israel, and decided to invest the excess cash in the local stock market. Now with the aforementioned PFIC and FATCA rules, this is more difficult. Some have chosen buying an extra property for investment purposes, but for most investors, tying up their entire net worth in property, without proper amounts of more liquid investments, is a mistake.
This means that 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- accept 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 to use her. If you choose someone based in Israel, make sure that they are licensed both in Israel and in the US. There are a lot of advisors running around under the radar screen without the appropriate licenses, pitching all kinds of investments 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 author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email firstname.lastname@example.org.