What Happens to My US 529 and HSA After Aliyah?

Your US 529 and HSA do not disappear when you make aliyah, but they stop being the neat tax-free boxes they were at home. Israel has no 529 and no HSA in its tax code and recognises neither wrapper, so as an Israeli resident the dividends and gains inside them can be taxable to you here even while the United States still treats the same account as sheltered. The wrappers were written into US statute, not into any treaty, and the Israel Tax Authority is not bound to honour them.

Almost every American oleh is blindsided by the same thing: in the US, a 529 or HSA is a “set it and forget it” account the IRS never taxes as it grows. In Israel, the shelter is one-sided. The US keeps deferring tax inside the wrapper, but Israel looks straight through it to the underlying income, because to an Israeli tax officer a 529 is just a brokerage account with your child’s name on it and an HSA is just a savings account. The ten-year new-oleh exemption can hide that foreign income for now, but only for now, and from 1 January 2026 you must report it even while it stays tax-exempt.⁶

Does Israel recognise the 529 or HSA tax shelter at all?

No. Neither wrapper exists in Israeli law, and Israel does not import a foreign country’s tax shelter just because the US grants one. The Israel Tax Authority treats the contents of a 529 as an ordinary foreign investment portfolio and the contents of an HSA as an ordinary foreign deposit or brokerage account.⁶ That means the dividends, interest, and realised capital gains generated inside the account are, in principle, Israeli-taxable foreign income once you are an Israeli resident, even though no money has left the account and the US still considers it untouched.

The practical rescue for most olim is the ten-year exemption. Israel exempts a new resident’s foreign-source income and gains for ten years from the aliyah date, which normally shelters the internal growth of a 529 or HSA during that window.⁶ Two cautions attach. First, from 1 January 2026 the exemption became report-but-still-tax-exempt: the income stays untaxed, but you must now disclose these foreign accounts and their income to the Israel Tax Authority annually.⁶ Second, the exemption ends, around the start of your eleventh Israeli tax year the internal income of these accounts can become fully Israeli-taxable, even though the US still defers it. Plan the exit from the exemption, not just the entry.

Can I still use my 529 for an Israeli or foreign university?

Sometimes, it turns on whether the school is an “eligible educational institution.” The US makes a 529 withdrawal tax-free only when it pays qualified education expenses at an institution eligible to participate in a US Department of Education student-aid program.³That list is not limited to American campuses: a number of foreign universities, including several in Israel, appear on the federal student-aid list precisely so that US students abroad can use federal loans there. If your child’s Israeli or other foreign university is on that list, a 529 distribution for tuition there is a qualified, US-tax-free withdrawal.³

Do not assume an Israeli degree disqualifies the account, and do not assume it qualifies either, check the specific institution against the federal student-aid database before you spend.³ If the school is not on the list, the same withdrawal becomes a non-qualified distribution with the tax consequences in the next section. Qualified expenses also reach beyond tuition to required fees, books, supplies, and equipment, and the rules have been broadened over time, so confirm the current scope in Publication 970 rather than relying on memory.¹

What does a non-qualified 529 withdrawal actually cost?

On the US side, the earnings portion of any 529 distribution not used for qualified education is taxed as ordinary income to the recipient, plus an additional 10% federal tax on those earnings.¹ Only the earnings are hit, your original contributions come back tax- and penalty-free, because they were made with after-tax dollars. The 10% additional tax is waived in limited cases, including a distribution made because the beneficiary died or became disabled, or to the extent the beneficiary received a tax-free scholarship.¹

On the Israeli side, the picture depends on timing. Inside the ten-year exemption, the gain is exempt foreign income (now reportable from 2026).⁶ After the exemption ends, the realised gain on a non-qualified withdrawal is Israeli-taxable foreign capital income for an Israeli resident.⁶ A US person therefore has to model two layers at once: the 10% US penalty plus US ordinary tax on the earnings,¹ and, post-exemption, Israeli tax on the same gain with foreign-tax-credit relief sorting out the overlap.

How does the 529-to-Roth rollover work for leftover money?

The 529-to-Roth rollover lets you move unused 529 money into a Roth IRA for the same beneficiary without the non-qualified penalty, subject to strict conditions.² The cap is a $35,000 lifetime limit per beneficiary, the 529 account must have been open at least 15 years, the rollover cannot exceed contributions (and their earnings) made before the 5-year period ending on the distribution date, the annual move is also limited by the normal Roth contribution limit, and it must travel as a direct trustee-to-trustee transfer.² This is the cleanest exit for an oleh whose child ended up not needing the full 529, it converts surplus education money into US retirement money rather than burning the 10% penalty.¹

For an oleh, watch the Israeli overlay. A Roth IRA is itself a US wrapper Israel does not formally recognise, so after the rollover the same question follows the money: Israel may eventually look through the Roth to its internal income just as it would the 529. The rollover solves the US-penalty problem; it does not exempt the balance from Israeli tax once your ten-year window closes.⁶

Can I keep contributing to my HSA after aliyah?

Almost always no. To contribute to an HSA you must be an “eligible individual” covered by a US-qualifying high-deductible health plan (HDHP) with no other disqualifying coverage.⁴ For 2026 an HDHP needs a minimum annual deductible of $1,700 for self-only coverage or $3,400 for family coverage, and the 2026 contribution limits are $4,400 self-only and $8,750 family.⁴ An Israeli קופת חולים (Kupat Cholim) is statutory national health coverage, not a US HDHP, so once it becomes your health plan you are no longer an eligible individual, and HSA contributions must stop the month that coverage begins.⁴

The good news is narrower than it sounds: you keep the existing HSA balance and can still spend it tax-free on qualified medical expenses for yourself, your spouse, and your dependents, wherever you live.⁴ You simply cannot add to it. If you pull money out for anything that is not a qualified medical expense, the US charges income tax plus an additional 20% tax on that portion, though that 20% tax falls away once you are disabled, reach age 65, or die.⁴ After 65 the HSA effectively behaves like a traditional IRA for non-medical withdrawals: taxed as income but no penalty.

Will Israel tax the growth inside the HSA?

It can, on the same look-through logic as the 529. Israel sees an HSA as an ordinary foreign savings or brokerage account, so the interest, dividends, and gains it earns are foreign-source income to an Israeli resident.⁶ During the ten-year exemption that income is exempt (reportable from 2026); after the window closes it can be Israeli-taxable even though the US is still sheltering it.⁶ This is the cruel asymmetry of an HSA after aliyah, you may lose the ability to contribute on the US side and, eventually, the tax-free growth on the Israeli side, while still being locked into US qualified-expense rules to get the money out cleanly on the US side.

A defensible response many olim consider is to hold the HSA more conservatively once contributions stop, so it throws off less reportable annual income, and to time larger qualified-medical reimbursements to draw the balance down before the exemption expires. Whether that fits your situation is a planning question for a cross-border adviser, not a rule, and the interaction with the foreign tax credit on your US return matters too.

Do the funds inside a 529 or HSA create a PFIC problem?

Generally no, and this is the rare cross-border relief in the whole topic. The PFIC regime attacks non-US pooled funds held by US persons; every non-US mutual fund or ETF is a passive foreign investment company that forces Form 8621 and the punitive §1291 interest-and-tax treatment.⁵ But the investments inside a 529 or an HSA are normally US-domiciled funds held at a US custodian, so they are not foreign funds and do not trigger PFIC.⁵ Keeping these accounts at their US custodians, in US-registered funds, is what keeps them PFIC-clean.

PFIC enters only if you take the proceeds out and reinvest them into non-US pooled vehicles after aliyah, an Israeli ETF, a מטבע חוץ (Matbea Chutz)-denominated fund, a kupat gemel. The moment a US person buys a non-US fund, the §1291 machinery starts, regardless of which account it sits in.⁵ So the rule of thumb is: leave the money inside the US wrapper in US-domiciled funds in your תיק השקעות (Tik Hashkaot) at a US broker, and you avoid the PFIC trap entirely. The Israeli look-through income, not PFIC, is the real cross-border exposure for these two accounts.

Your US 529 and HSA keep their US tax shelter after aliyah, but Israel does not recognise either wrapper and looks through to the income inside. The ten-year new-resident exemption normally shelters that internal growth, though from January 2026 you must report the accounts to Israel even while they stay tax-exempt.