Dear fellow practitioners, CPAs, attorneys, and other professionals. Welcome to the fifth edition of our “Dreidel” newsletter about planning and investment issues of US citizens living overseas.

This month Mike Reed focuses on Social Security taxation issues for US expats in Israel.

Social Security, for a person retiring in the US, can provide a large part of his or her retirement income and play a large part in their retirement plan.  As a quick refresher, Social Security can be claimed as early as 62 with a reduced benefit, at Full Retirement Age. For most people this is 67 for full benefit. If someone chooses, they can wait until 70 to receive their maximum benefit. Of course, there are pros and cons to claiming at each point, such as payback periods and perhaps less of a benefit over time. Each person’s situation is going to be different.

Social Security is not taxed by the US or Israel for people living in Israel, and therefore delaying benefits for as long as economically possible can have some advantages.

People immigrating to Israel are given a 10-year tax holiday by Israel, on foreign active and passive income. As such this may be a great time to withdraw from retirement and taxable asset accounts since they will only be taxed in the US. With some proper withdrawal planning there is the possibility to minimize US tax such as using Roth IRAs or capital gains from taxable accounts. With Roth IRAs it is not clear how they will be taxed in Israel, so taking distributions from them during the 10-year tax exempt period could add even more value. Also, by drawing on Traditional IRA accounts now, it can keep the balance from growing so large that future RMDs starting at 73 do not produce a large tax burden.

Once the 10-year tax exemption from Israel expires, then it would be a good time to take the delayed larger Social Security benefit since it is not taxed in either country for beneficiaries living in Israel. Therefore, it all stays in your pocket. This benefit can be supplemented if necessary, with withdrawals from investment accounts.  Lastly, the other advantage from delaying Social Security is that it would provide a larger income to the surviving spouse since they can choose the larger of their benefit or that of the spouse who has passed.

With the way the tax laws work for a US citizen retiring to Israel, there are some more planning options available.  But as always, everyone’s situation is going to be unique to the specific person, so it can be wise to consult with professionals who have experience working with people who are retiring to Israel.

We are happy to discuss this in further detail, if you do have non-US clients who live outside the US with US brokerage assets. Please contact us to discuss.

Disclaimer

Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Registration does not imply a certain level of skill or training. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.