Israel exempts every foreign retirement and investment account for your first 10 years of tax residency: 401(k), traditional IRA, Roth IRA, UK SIPP, UK ISA, and Canadian RRSP income all arrives free of Israeli tax, and U.S. Social Security stays exempt in both countries permanently under Article 21 of the treaty. Residents who arrived on or after January 1, 2026 must now report those accounts to the Israel Tax Authority from year one, even while owing nothing. From year 11, Israel taxes a foreign pension only up to what the source country would have charged, and taxes ISA and TFSA gains at the flat 25% because it ignores those wrappers. The IRS follows its citizens regardless: Form 1040 every year, an FBAR once foreign accounts pass $10,000, Form 8938 above $200,000, and PFIC tax of up to 37% plus interest on Israeli mutual funds. Required minimum distributions start at age 73.
You spent decades building savings under one country’s rules, and now three tax systems claim a say: the country where the account sits, the United States if you carry a U.S. passport, and Israel where you live. Each account gets different treatment, two of them (the Roth IRA and the ISA) get treatment nobody warns you about, and the reporting forms carry penalties that dwarf the actual tax. This page walks through every major account, country by country, with the 2026 numbers. It is part of our guide to pensions, taxes, and financial planning for retirees in Israel, which sits inside the complete guide to retiring in Israel.
The 10-year clock that sets every rule below
Sections 14 and 97 of Israel’s Income Tax Ordinance give new olim and veteran returning residents (10 or more consecutive years abroad) a complete exemption on all foreign-source income for 10 years from the date of tax residency: foreign pensions, Social Security, IRA and 401(k) distributions, dividends, interest, rent, and capital gains on foreign assets, with no cap. The clock starts once, cannot be paused, and cannot be extended.
The 2026 change is about paperwork, not tax. Anyone who became an Israeli tax resident on or after January 1, 2026 lost the parallel reporting exemption: the 10 tax-free years remain, but every foreign account and every shekel of foreign income must appear on the annual Israeli return from year one. Pre-2026 arrivals keep both exemptions for their full window. Israeli-source income is always taxable, including remote work physically performed from Israel, and any Israeli salary also builds a mandatory local pension; our guide to Israeli pension funds, contributions, and payouts explains that side. For the exemption’s fine print, see the full breakdown of the 10-year oleh tax exemption.
American accounts: the IRS moves to Israel with you
U.S. tax filing from Israel never stops
The United States taxes by citizenship, not residence (the only other country that does is Eritrea), so U.S. tax filing from Israel is an annual fact of life: every citizen and Green Card holder files Form 1040 on worldwide income, with an automatic June 15 deadline for overseas filers and an extension to October 15. The treaty’s savings clause strips most treaty benefits from U.S. citizens, so the treaty rarely rescues you from double filing.
Two tools keep the double tax at bay. The Foreign Earned Income Exclusion (Form 2555) shields up to $132,900 of earned income per person in 2026 ($265,800 for a qualifying couple), but it covers wages and self-employment only, not pensions, IRA withdrawals, dividends, or Social Security, so most retirees get little from it. The Foreign Tax Credit (Form 1116) is the retiree’s real tool: Israeli tax paid credits dollar for dollar against U.S. tax on the same income, and because Israel’s top rate reaches 50% (47% plus a 3% surtax above ₪721,560 a year), Israeli-taxed income usually generates excess credits, which carry back 1 year and forward 10. The one clean win: U.S. Social Security is exempt from tax in both countries, indefinitely, under Article 21 of the U.S.-Israel treaty.
FBAR: the $10,000 report with the $10,000 penalty
The FBAR (FinCEN Form 114) is the annual report of foreign financial accounts, filed electronically with FinCEN, not the IRS. It is triggered the moment the combined value of all your non-U.S. accounts tops $10,000 at any point in the year: Israeli bank accounts, Israeli brokerage accounts, kupot gemel, and keren hishtalmut all count, and three small accounts that together cross the line must all be reported. The deadline is April 15 with an automatic extension to October 15, no request needed. Since the Supreme Court’s 2023 Bittner decision, the non-willful penalty runs per unfiled annual report (up to $10,000 each), not per account; willful violations cost the greater of $100,000 or 50% of the account balance.
FATCA: the second report, and the one your bank files about you
FATCA adds Form 8938, attached to your 1040, once foreign financial assets pass the expat thresholds: $200,000 on December 31 or $300,000 at any point for single filers living abroad, $400,000 and $600,000 for joint filers. It overlaps FBAR but is broader, reaching foreign stocks and partnership interests, not just accounts. FATCA also works in reverse: under the U.S.-Israel intergovernmental agreement, Israeli banks report their American account holders to the Israel Tax Authority, which passes the data to the IRS. Most olim trip the FBAR threshold years before the FATCA one; plan on filing both.
PFIC issues: the trap that can eat an entire gain
PFIC issues are the single most expensive mistake Americans make with money in Israel. A PFIC (Passive Foreign Investment Company) is almost any non-U.S. pooled fund, and that includes ordinary Israeli mutual funds (kranot neemanut), Tel Aviv Stock Exchange ETFs, and Israeli money market funds. Under the default regime, the IRS spreads your gain across every year you held the fund, taxes each slice at the top rate of 37%, then adds interest charges on each year’s imputed tax; the bill can exceed the gain itself. Our estimate: on a $20,000 fund gain, the default PFIC regime takes $7,400 before interest charges, against $3,000 at the 15% long-term capital gains rate in a U.S.-domiciled ETF, so at least $4,400 extra tax on one modest position (basis: 37% default PFIC rate versus the 15% long-term rate).
- Reporting: Form 8621, one per fund, once PFIC holdings pass $25,000 (single) or $50,000 (joint), and always in any year you sell or receive a distribution.
- Escape hatches: a QEF or mark-to-market election softens the regime, but both must generally be made in the first year of ownership, and few Israeli funds issue the statements a QEF needs.
- Not PFICs: individual Israeli stocks and bonds, U.S.-domiciled ETFs bought through any broker, Israeli bank deposits (pikadon), and direct real estate.
- Grey zone: employer keren pensia and keren hishtalmut, where the IRS has issued no guidance and practitioner filing practice is split.
The working rule for U.S. persons: never buy an Israeli-domiciled fund. Buy U.S.-domiciled ETFs instead, even through an Israeli bank.
401(k) and traditional IRA: the foreign-pension template
Israel’s 401(k) treatment is the template for every American retirement account: it is a foreign pension. For 10 years, distributions are exempt from Israeli tax (2026 and later arrivals report them anyway). From year 11, Section 9(c) of the Income Tax Ordinance, teisha gimel, caps the Israeli tax at whatever U.S. tax would have been due if that distribution were your only U.S. income that year; if the U.S. took 22%, Israel cannot take more. The alternative election exempts 35% of the distribution from Israeli tax and taxes the rest at regular rates. Traditional IRA treatment is identical on the Israeli side, and on the U.S. side both are ordinary income, with a 10% penalty on withdrawals before age 59½ wherever you live. The year-11 mechanics across every pension type are mapped in our guide to how Israel taxes foreign pension income, and the Israeli forms that lock in caps and exemptions are covered in pension tax and retirement tax forms in Israel.
One practical constraint: Israeli banks cannot hold a U.S. IRA or 401(k). The account stays with a U.S. custodian such as Fidelity, Vanguard, or Schwab, and distributions are wired to Israel after U.S. withholding. Keeping U.S. custodians comfortable with an Israeli address is its own project; see managing pension accounts from Israel.
Roth IRA: tax-free in America, unruled in Israel
Roth IRA treatment is the open legal question of this entire page. The U.S. side is settled: qualified distributions after age 59½ and the 5-year holding period are entirely tax-free, and the account has no required distributions during your lifetime. The Israeli side has no Tax Authority ruling and no court decision as of mid-2026. The reading most practitioners apply says Section 9(c) caps Israeli tax at the U.S. tax, and since the U.S. tax on a qualified Roth distribution is zero, the Israeli tax is zero. The conservative reading says Israel never recognized the Roth as a pension and can tax distributions as foreign income from year 11. During the 10-year exemption the question is moot, which is exactly why the smart move happens before aliyah: convert traditional IRA money to Roth while still a U.S. resident, pay the U.S. conversion tax, and arrive in Israel holding the account whose distributions both readings treat most gently.
Required minimum distributions: the IRS calendar does not care where you live
Required minimum distributions (RMDs) force money out of pre-tax accounts on a fixed schedule. Under SECURE 2.0, the starting age is 73 for anyone born 1951 through 1959, rising to 75 for those born in 1960 or later (from 2033). Each year’s RMD is the prior December 31 balance divided by the IRS Uniform Lifetime Table factor. Our estimate: a $500,000 traditional IRA at age 73 must pay out about $18,900 in year one, roughly ₪56,600 at the working rate of ₪3.00 to the dollar (basis: $500,000 divided by the age-73 table factor of 26.5). You may defer the first RMD to April 1 of the following year, but then you take two RMDs in one tax year, which usually backfires. Roth IRAs owe no RMDs while you are alive; inherited IRAs must generally be emptied by non-spouse heirs within 10 years. Israel treats each RMD like any 401(k) distribution: exempt in years 1 to 10, capped under teisha gimel afterward.
UK accounts: the SIPP travels well, the ISA does not
UK SIPP treatment: a pension the treaty actually protects
UK SIPP treatment rests on the UK-Israel double taxation convention, under which pension income is taxable in one country only. During your 10 exempt years, SIPP withdrawals are free of Israeli tax, and here is the play worth knowing: an oleh can waive the Israeli exemption on the SIPP, making it Israeli-taxable, and then claim exemption from UK tax under the treaty. A retiree sitting in Israel’s low brackets pays less that way than under UK rates. The fund itself stays with the UK provider, keeps growing tax-free inside the wrapper, still pays a 25% tax-free lump sum capped at £268,275, and accepts new contributions only while you have UK relevant earnings (annual allowance £60,000). To stop HMRC’s PAYE withholding on withdrawals, file Form DT Individual claiming UK-Israel treaty relief. From year 11, teisha gimel applies: Israeli tax capped at the UK level. A QROPS transfer out of the UK triggers a 25% overseas transfer charge unless a specific exemption applies, so it is a move to price carefully, not a default.
UK ISA treatment: the wrapper dissolves at Ben Gurion
UK ISA treatment is the rude surprise for British olim. Israel does not recognize the ISA wrapper at all: once your 10 exempt years end, a stocks and shares ISA pays Israeli capital gains tax at the flat 25%, and cash ISA interest is taxed at 15% for unlinked accounts and 25% for index-linked ones. A £40,000 gain a UK resident would realize tax-free costs £10,000 in Israeli tax from year 11. You also cannot add a penny after leaving: the £20,000 annual subscription requires UK residency. The account may stay open and stays sheltered from UK tax, but since the wrapper buys you nothing against Israeli tax, the rational move is to realize gains inside your exempt window and redeploy into holdings that are efficient for an Israeli resident.
Canadian accounts: the RRSP crosses cleanly
RRSP treatment is the cleanest of any account here. The RRSP is specifically exempt from Canada’s deemed disposition rules, so leaving Canada costs the plan nothing (you file the T1161 foreign-property list if you hold over CAD 25,000 of reportable property, but the RRSP is excluded). The plan stays at the Canadian institution, since it cannot be transferred to Israel, and new contributions stop in practice because they require Canadian earned income. Withdrawals as a non-resident face Canadian withholding: 25% on lump sums, 15% on periodic RRIF-style payments under the Canada-Israel treaty. Our estimate: drawing CAD 100,000 as periodic payments instead of one lump sum saves CAD 10,000 in withholding (basis: 25% lump-sum rate versus the 15% treaty periodic rate). Israel applies the familiar pattern: exempt for 10 years, teisha gimel after, with Canadian withholding credited against any Israeli tax. The TFSA behaves like the ISA: safe from Canadian departure tax, invisible as a wrapper to Israel, and taxable here from year 11.
Exit taxes: America bills you for leaving citizenship, Canada for leaving the country
An exit tax from your home country is the one bill people fear most and usually never owe. Moving to Israel triggers no U.S. exit tax: Section 877A applies only when a citizen formally renounces or a long-term Green Card holder gives up the card. Renouncers become “covered expatriates” if net worth is $2,000,000 or more, average annual U.S. tax over the past 5 years tops $211,000, or they cannot certify 5 years of tax compliance on Form 8854. Covered expatriates are deemed to sell everything the day before expatriation, with gains above a $910,000 exclusion (2026) taxed, retirement accounts treated as distributed, Form W-8CE due to custodians within 30 days, and 30% withholding on eligible deferred compensation. Most dual citizens simply keep the passport and never touch this regime.
Canada is the opposite: its departure tax bites the day you cease Canadian residency. Non-registered investment accounts, foreign real estate, and private company shares are deemed sold at fair market value on your departure return, while RRSPs, RRIFs, TFSAs, and Canadian real estate are exempt. Once you are out, Canada taxes only your Canadian-source income, because it taxes residence, not citizenship. The UK charges no exit tax on individuals who emigrate. Where these accounts sit next to Israeli property, wills, and heirs is its own discipline; see property and wealth planning for retirees in Israel.
Every account at a glance
| Account | Home-country tax when you draw | Israel, years 1 to 10 | Israel, year 11 on |
|---|---|---|---|
| 401(k) / traditional IRA | U.S. ordinary income rates; 10% penalty before 59½ | Exempt (reported if resident from 2026) | Capped at the U.S. tax under Section 9(c), or 35% exemption election |
| Roth IRA | Zero on qualified distributions | Exempt | No ITA ruling; prevailing practice reads the 9(c) cap as zero |
| U.S. Social Security | Up to 85% includible in U.S. income | Exempt | Exempt forever (treaty Article 21) |
| UK SIPP | UK income tax unless treaty relief claimed; 25% lump sum tax-free to £268,275 | Exempt, or waive the exemption to escape UK tax | Capped at the UK tax under teisha gimel |
| UK ISA | Zero in the UK | Exempt | Gains 25%; interest 15% unlinked, 25% linked |
| Canadian RRSP / RRIF | Withholding: 25% lump sum, 15% periodic (treaty) | Exempt | Teisha gimel cap; Canadian withholding credited |
| Canadian TFSA | Zero in Canada | Exempt | Taxed as ordinary foreign investment income |
Withholding taxes on investments: what each country skims at source
Withholding taxes on investments are collected before the money reaches your Israeli account, then credited against Israeli tax on the same income under Section 200 of the Income Tax Ordinance. The credit has a hard edge: where the foreign withholding exceeds the Israeli tax on that income, the excess is lost, with no carryforward like the U.S. system gives.
| Source country | Dividends | Interest | Pension withdrawals |
|---|---|---|---|
| United States (treaty ceilings for non-U.S.-citizen Israeli residents) | 25% (12.5% for 10%+ corporate shareholders) | 17.5% general; 10% for financial institutions; 0% government-backed | Reduced by treaty for non-citizens; citizens get no treaty relief |
| United Kingdom | 0% at source | 0% for most non-residents | PAYE applies until Form DT Individual is accepted |
| Canada | 15% (treaty; 25% statutory) | 25% statutory, treaty-reduced | 25% lump sum; 15% periodic |
U.S. citizens read the first row differently: the savings clause means they simply pay full U.S. rates, 0%, 15%, or 20% on qualified dividends and long-term gains, ordinary rates otherwise. On the Israeli side, dividends and interest from abroad are taxed at 25% and capital gains at 25% (30% for holders of 10% or more of a company), and above ₪721,560 of annual income the 3% surtax plus the 2% capital-income surtax push the effective top rate on gains to 30%.
Six terms, one line each
- PFIC: a non-U.S. pooled fund (mutual fund or ETF) that the IRS taxes at 37% plus interest under its default regime.
- FBAR: FinCEN Form 114, the annual report due once your foreign accounts together pass $10,000.
- Savings clause: the treaty article letting the U.S. tax its own citizens as if the treaty did not exist.
- Teisha gimel: Section 9(c) of Israel’s Income Tax Ordinance, capping Israeli tax on a foreign pension at the source country’s tax.
- QROPS: an overseas scheme that can receive a UK pension transfer, normally at the cost of a 25% transfer charge.
- RMD: the minimum the IRS forces out of pre-tax accounts every year from age 73.
Run these checks before you move a shekel
- Pin down your Israeli tax-residency start date. Before January 1, 2026 means no Israeli reporting during the exemption; on or after means you file from year one.
- Before buying any fund through an Israeli bank or broker, confirm the fund is U.S.-domiciled if you are a U.S. person. One Israeli mutual fund creates a PFIC file.
- File Form DT Individual with HMRC before your first SIPP withdrawal, or PAYE withholding starts immediately.
- Do Roth conversions before aliyah, while you are still only inside the U.S. system.
- Structure RRSP drawdowns as periodic payments, not a lump sum, before signing anything with the Canadian institution.
- If you turn 73 this year, calendar the RMD now; a missed one draws an IRS excise tax, and the April 1 deferral doubles next year’s taxable income.
A dual-qualified cross-border accountant earns their fee here: they coordinate the foreign tax credits, the Section 9(c) cap, and the treaty elections so the same shekel is never taxed twice.
Questions American, British, and Canadian retirees ask
Do I still file U.S. taxes after making aliyah?
Yes, every year. Form 1040 on worldwide income, an FBAR once foreign accounts pass $10,000 combined, and Form 8938 above the expat thresholds. Aliyah changes what you owe, never whether you file.
Is my 401(k) taxed in Israel?
Not for your first 10 years of residency. From year 11, Israeli tax is capped at what the U.S. would charge on that distribution, or you can elect to exempt 35% of it and pay regular Israeli rates on the rest.
Is a Roth IRA tax-free in Israel?
There is no official ruling. Most practitioners treat qualified Roth distributions as untaxed in Israel because the Section 9(c) cap equals the U.S. tax, which is zero. For the first 10 years the point is moot, since all foreign income is exempt anyway.
Can I keep contributing to my ISA, SIPP, or RRSP from Israel?
No in practice. ISA subscriptions require UK residency, SIPP contributions require UK relevant earnings, and RRSP room requires Canadian earned income. Existing balances stay invested; new money goes into Israeli or U.S. vehicles.
Does Israel tax U.S. Social Security?
Never. Article 21 of the U.S.-Israel treaty exempts it in both countries, and the exemption survives the end of your 10-year window.
I never filed an FBAR for my Israeli bank account. How bad is it?
The non-willful penalty runs up to $10,000 per unfiled annual report since the Bittner ruling, and the IRS streamlined filing compliance procedures let most non-willful late filers catch up with reduced or no penalties. Catch up before the IRS writes first; FATCA means your Israeli bank has already reported you.
Where to verify each number
- IRS (irs.gov): Form 2555 and the FEIE amount, Form 8938 thresholds, Form 8621 and PFIC rules, RMD tables.
- FinCEN (fincen.gov): FBAR filing through the BSA e-filing system.
- Israel Tax Authority (taxes.gov.il): the 10-year exemption, 2026 reporting rules, Section 9(c) relief, foreign tax credits.
- HMRC (gov.uk): Form DT Individual, ISA rules, pension lump-sum allowance.
- CRA (canada.ca): non-resident withholding and departure tax.
- AACI and Nefesh B’Nefesh: English-language cross-border tax guidance for olim.
Figures last verified July 2026 against IRS, HMRC, CRA, and Israel Tax Authority publications. U.S. amounts index each January; treaty rates change only when treaties do.
One next step
Your first 10 years in Israel are the cheapest window you will ever have to move foreign money: distributions and gains arrive free of Israeli tax, which is exactly when funding an Israeli home costs the least. If part of a 401(k), SIPP, or RRSP is earmarked for a place here, tell us your budget and timeline and we will map homes that fit what your accounts can fund.
