Many Americans, and investors around the world, are watching anxiously this week to see what the U.S. Congress will do (or not do) to save the U.S. economy and taxpayers from the "fiscal cliff". If new legislation is not enacted by December 31, 2012, taxes for all Americans will automatically increase. The Congressional Budget Office has already estimated that this will lead to another recession in 2013.
That would mean a 20 percent capital gains rate, and a dividend rate at income tax levels, which could revert to the Clinton-era 39.6 percent for the highest earners. The Affordable Care Act in 2013 adds 3.8 percent to those rates for the wealthiest Americans.
As you may know, your U.S. retirement account (IRA, 401k, etc.) can fund an Israeli investment account and keep the funds tax-deferred. But sometimes, it is wiser to take out your funds and pay the taxes now, while the tax rates are relatively low, instead of waiting until next year when the tax rates may be higher. Read PR Newswire's short article on the surprise that awaits many IRA owners in 2013.
If you've considered opening an Israeli investment account in the past, you may be able to save tens of thousands of shekels by taking a lump distribution from your IRA in 2012 before tax rates go up. For example, if your IRA had $100,000 of dividends and $100,000 of capital gains, the tax you could pay in 2013 would be up to $33,400 more than if you paid the tax in 2012. That is 125,000 more shekels with which to invest in Israel if you act quickly. The Israeli investment account itself can be funded in 2013.
What can be done to prevent automatic tax increases on your retirement account (IRA, 401k, etc.) from going into effect for you? Consider calling your retirement fund administrator or downloading their simple form for withdrawing your funds in 2012 before the Bush tax cuts expire on December 31, 2012.