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'Building Wealth In Israel’

October 25, 2007. 5 Towns Jewish Times: Ari Sher

Book Review

If you’re interested in living in Israel, read this book by Douglas Goldstein, CFP, but only after you have already settled down in the Holy Land.

This caveat stems from one sentence in the book:

“U.S. [residents] in Israel must report to the tax authorities of both countries, and divide their foreign tax credits and resulting tax payments according to special rules in the tax laws…and to the U.S.-Israel tax treaty.” In plain English, this means that once in Israel, an American citizen has to report to the U.S. as well as to Israeli authorities and must be proficient in the tax laws of both countries. Now that I have gotten that out of the way, let’s talk about the rest of the book.

The title, “Building Wealth In Israel”, is somewhat misleading. In actuality, the book contains an excellent introduction to investing and to financial planning in general. It would make a great gift for anyone interested in learning about or boning up on investment basics. Therefore the subtitle, “A Guide To International Investments and Financial Planning” is much more descriptive of the actual content.

The early chapters of the book deal primarily with general investment options and strategies with an Israeli slant. The later chapters give an overview and explanation of the Israeli tax code, as well as the U.S.-Israel Tax Treaty.

Mr. Goldstein introduces us to a new system of work-related benefit plans such as bituach leumi, keren hishtalmut and bituach minahalim.

Bituach leumi is Israel’s national insurance and provides services such as child allowance, maternity leave, unemployment insurance, work-related injury compensation, and aid to the disabled. According to the bituach leumi website (www.btl.gov.il), the basic government check for a retired worker (in 2005 when the book was published) was about NIS 1100 per month. That is not a lot of money, even by Israeli standards.

Keren hishtalmut is basically a continuing education fund. This fund uses money set aside by both the employer and the employee for a period of about six years. After that time, funds can be withdrawn from this account and used for family celebrations, renovations, overdrafts (ok, you get the idea) and even for further education.

Bituach minahalim (manger’s insurance) is a three-tiered retirement plan consisting of savings, insurance, and severance pay. In the savings component, both the employer and employee put about 5% of the gross paycheck into this fund. Since taxes are not paid on the growth of this fund, the money deposited increases at a faster rate than it would in a general taxable investing account. Once the employee retires, he can receive either a lump sum or monthly paychecks. In the insurance component, both the employer and employee split the expenses for purchasing and maintaining life and disability insurance. In the severance pay component, called pitzuim, the employee receives his money if he is fired or forced to leave work for reasons such as retirement or military service. Leaving work voluntarily does not entitle the worker to receive this compensation, although the employer, at his own discretion, is allowed to grant him some or all of the funds in this account (called “protectzia” in Hebrew).

The author also gives us an excellent guide to Israeli style banking. From a personal perspective, I would say that Israeli banks have become much more user-friendly than they may have been in the past. Nevertheless, many differences remain. For example, while Israeli banks offer many of the same checking and savings services provided by American banks, Israeli banks do not usually offer money market accounts. This means that liquid assets, like money in a checking account, remains in an open account earning no interest whatsoever. In addition, the Israeli government does not provide an insurance program similar to that offered by the Federal government in the U.S., such as the FDIC.

Two of the most common accounts in Israeli banks are pikdonot (closed deposits) and patach (open accounts). In a pikdonot account, you commit funds for a specific period of time. In return, you receive a favorable interest rate on the deposited funds. A patach account is a standard shekel savings account with check writing privileges and is similar to an American checking account.

There is also a special guest chapter by Leon Harris, CPA who writes about “The Tax Scene for Israeli Investors.” Mr. Harris describes current Israeli tax law in great detail (personally, it’s about as interesting as a description of root canal, but the information is, nevertheless, important.).

Should you make aliyah or not? This well-written book will not help you answer that question. Whatever choice you do eventually make, however, will not be due to a lack knowledge of investment or banking options in the holy land.

As the author states (playing on the famous joke, “How do you make a million dollars in Israel? Come with two million.”): “Whether or not there is a pot of gold at the end of the rainbow, you can indeed establish yourself in your new homeland and build a comfortable financial future for your family...regardless of your level of wealth when you arrive. You can increase your net worth with earnings, investments, and diligent management of your assets... In the pages that follow…you will learn how to turn a small fortune back into a large one.”

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