The Problem with US Brokerages and Israeli Residency
When you become an Israeli tax resident, you are required to declare this to your US brokerage. Under FATCA (Foreign Account Tax Compliance Act) and US securities regulations, many brokerages restrict or close accounts held by non-US residents — even for US citizens. This is not a legal requirement on you, but it is a business decision many firms make to avoid regulatory complexity.
The closure is not because you did anything wrong. It is because some brokerage firms do not want to deal with the compliance overhead of servicing accounts held by residents of foreign countries.
Which Brokerages Restrict Israeli Residents
The landscape changes, and firms update their policies. As of recent experience from the olim community:
- Vanguard: Has a pattern of closing brokerage accounts of non-US residents. You can typically keep existing mutual fund accounts, but new purchases may be restricted. Many olim have reported account closures.
- Fidelity: Generally more accommodating than Vanguard for US citizens abroad, but policies vary by account type. Some olim retain full access; others report restrictions on new purchases.
- Schwab: Has historically been considered one of the more expat-friendly brokerages. Schwab International and Schwab Global Account options exist, and many American olim maintain active Schwab accounts. Policies can change, however.
Do not rely on anecdotal reports. Call your brokerage before you leave and ask directly: "If I update my address to Israel and declare Israeli tax residency, will my account remain fully functional?" Get the answer in writing if possible.
Interactive Brokers: The Expat Default
Interactive Brokers (IBKR) is the most widely used brokerage among American olim for a simple reason: it explicitly supports accounts held by US citizens residing abroad. You can hold US securities, trade in multiple currencies, and maintain the account as an Israeli resident without restriction.
The trade-offs compared to retail brokerages like Fidelity or Schwab:
- The interface is more complex and less consumer-friendly
- The fee structure is different — generally low commissions but some account maintenance fees for smaller balances
- Customer service is less accessible than at major retail firms
If your US brokerage closes your account, IBKR is almost certainly where you will transfer. Many olim open an IBKR account before aliyah and transfer proactively rather than waiting for a forced closure.
What to Do Before Your Account Gets Restricted
If you suspect your brokerage will restrict your account, act before you update your address to an Israeli one. The sequence matters:
- Open an Interactive Brokers account while still a US resident. IBKR's onboarding is simpler for US-address applicants.
- Initiate an ACATS transfer (Automated Customer Account Transfer Service) to move your positions in-kind — meaning your shares transfer directly without being sold. This avoids capital gains.
- Only after the transfer is complete, update your address to Israel.
An in-kind transfer via ACATS typically takes 5-7 business days and does not trigger a taxable event. Selling everything and wiring cash would trigger capital gains tax on all unrealized gains — a potentially enormous and avoidable bill.
The PFIC Problem
Once you are an Israeli resident, you cannot easily buy non-US ETFs or mutual funds through your US brokerage without falling into Passive Foreign Investment Company (PFIC) rules — a punitive US tax treatment. This is a separate but related issue covered in the investing path. The short version: keep buying US-listed ETFs through your IBKR account and you avoid the problem entirely.
Israeli Brokerage Options
You will also need an Israeli brokerage for Israeli-market investments. Your Israeli bank offers a תשואה (Tsuaa)-focused investment account (through the bank's brokerage arm), though the דמי ניהול (Dmei Nihul) (management fees) are typically higher than at independent Israeli brokerages like Meitav, IBI, or Psagot. The article on Israeli brokerage options in the Building Wealth path covers this in detail.