If you’re an American living in Israel, you probably already know that managing your overseas investments and retirement accounts can feel like walking through a minefield. There are tax laws here, tax laws there, and a whole lot of fine print that can make even the savviest investors throw up their hands in frustration. But don’t worry—you’re not alone. With the right expert guidance, you can tackle these challenges head-on, turn complexity into opportunity, and make sure you’re on track to meet your financial goals.
The Challenges of Cross-Border Investments
Let’s face it: the tax situation is a nightmare. The United States taxes its citizens on their worldwide income, no matter where they live, while Israel has its own rules for taxing residents. It’s like playing a game with two sets of rules—except if you mess up, you don’t just lose points; you could be hit with unexpected tax bills, fines, or miss out on tax savings. It takes careful planning and a good understanding of both tax systems to avoid these pitfalls.
And it’s not just the taxes. Some investments that are easy to access in the U.S. aren’t available in Israel, or they might be taxed differently. Take Israeli mutual funds, for example—under U.S. law, they are classified as Passive Foreign Investment Companies (PFICs), which means you could end up paying way more in taxes than you expected. Plus, there’s the currency exchange to think about. If you’re investing in both U.S. dollars and Israeli shekels, changes in exchange rates can impact the value of your investments, which means you need to manage currency risk as well.
Here’s an important point to consider: without proper management, currency fluctuations can eat away at your returns. Imagine saving diligently in U.S. dollars, only to find that the exchange rate has swung against you when you need to access that money in Israel. By working with a financial advisor, you can develop strategies to hedge against these risks and protect your wealth.
Note: This is for educational purposes only and is not intended as financial, legal, or tax advice. Please consult a professional for your specific situation.
Why Expert Guidance Matters
This is where having the right experts on your side makes all the difference. You need financial and tax professionals who understand the ins and outs of cross-border financial planning. They can help you make the most of your retirement savings, navigate complicated tax rules, and create an investment strategy that works across both countries.
Financial advisors who specialize in cross-border issues knows how to manage investments that span the U.S. and Israeli systems. They can guide you on critical topics like double taxation, how to structure your retirement accounts, and how to legally minimize your tax liabilities. For example, using tax treaties to avoid double taxation or structuring your accounts for maximum efficiency are not things you want to figure out on your own by trial and error—they require expert knowledge.
Behavioral biases can also play a role in cross-border investing. For example, many investors fall into the “status quo bias”—they prefer sticking with what they know rather than making changes. This can be risky when investing across borders, as tax rules and market conditions in Israel are different from those in the U.S. An advisor with cross-border experience can help you overcome these biases and make informed decisions that are in your best financial interest.
And don’t forget about your tax advisor. If you’re a U.S. citizen living abroad, you still need to report your income to the IRS. This includes any accounts that fall under FBAR (Foreign Bank Account Reporting) and FATCA (Foreign Account Tax Compliance Act). On top of that, you have Israeli tax regulations, which require you to disclose your foreign bank accounts and investments. A tax advisor who understands both U.S. and Israeli regulations can help you stay compliant, avoid costly mistakes, and find opportunities to save on taxes.
The Importance of Open Communication
Working with a professional team is especially important when you’re making big moves—like withdrawing money from your retirement accounts, selling a property, or making a large charitable donation. These types of actions can have serious tax consequences if they’re not planned properly. By keeping everyone in the loop, you can make decisions that take both your short-term needs and long-term goals into account, leading to smarter wealth management.
If you’re looking to simplify capital gains as a cross-border investor and learn more about strategies for minimizing tax burdens, read Tax Confusion: Simplifying Capital Gains for Cross-Border Investors by clicking here. Cross-border investing can be challenging, but with the right information and support, you can create a clear path toward financial success.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of this website, Portfolio Resources Group, Inc. or its affiliates. Neither Profile nor Portfolio Resources Group, Inc. or its affiliates, provide tax or legal advice. Nothing in this article is intended to be investment, tax, or legal advice. Information in this article is gathered from sources considered reliable, but we cannot guarantee their accuracy. Past performance is no guarantee of future returns.
