Roth Conversions for Olim: Timing It Right After Aliyah

What a Roth Conversion Is, and Why Olim Look at It

A Roth conversion moves money from a traditional retirement account into a Roth account. A traditional IRA or 401(k) was never taxed going in, so the IRS taxes it when you take it out. A Roth is the opposite: you pay the tax now, and then the money grows and comes out tax-free for the rest of your life. In a conversion you move the money from the first bucket to the second, and you receive nothing in hand. What you get in exchange is tax-free growth, tax-free withdrawals, and no forced payouts once you reach your seventies.

Two features make this worth a look. There is no age limit and no income limit on a conversion, so you can do it at any age, in any amount, and repeat it year after year. And a traditional account forces you to start taking taxable withdrawals at age 73, which a Roth never does, so converting can quiet a tax bill that would otherwise arrive later whether you want the money or not. One catch to respect: a conversion is permanent. The old do-over that used to let people unwind a conversion was repealed, so once you convert, you cannot reverse it.

For an American who moves to Israel, the conversion carries an extra angle. The certain prize is on the US side: you turn future US-taxable growth into growth the US will never tax again, and you take future required withdrawals off the table. Israel adds a second possible prize, because a new immigrant gets a window where foreign income is exempt, so the conversion may escape Israeli tax too. That Israeli piece is real but grey, so the honest way to think about it is a US-tax lock-in first, with the Israeli exemption as a bonus, not the reason to convert.

The New-Immigrant Window, and Why Timing Against It Matters

When you make aliyah (immigrate to Israel), Israeli law gives a new immigrant a ten-year window during which income from outside Israel is exempt from Israeli tax. A US retirement account is foreign income to Israel, so a conversion done inside that window is generally free of Israeli tax. That is the cleanest version of the play: the US charges a small tax, and Israel charges nothing.

Here is the part that keeps people from overpaying. The United States does not care about the Israeli window at all. The US benefit, tax-free growth forever, is identical whether you convert in year one or year fifteen. So the window's only job is to protect you from the risk that Israel also taxes the conversion. That protection is worth having when a low US-income year happens to fall inside the window. It is not worth converting at a bad US moment just to catch it. The US bracket math is the driver; the window is a tiebreaker.

Once the window closes, Israel's treatment turns murky. Israel may tax a later withdrawal, and the relief that Israeli advisors often cite, a partial exemption for foreign pensions, is not settled for an IRA or a Roth. For a large account where certainty is worth paying for, Israeli counsel can seek a case-by-case ruling from the Israeli Tax Authority that pins down the treatment in advance. We flag when that is worth doing, and Israeli counsel handles it.

The US Side: You Still Owe US Tax the Year You Convert

The number one misunderstanding is that living in Israel makes the conversion free. It does not. The converted amount is US income in the year you convert, taxed at ordinary rates, and you pay it out of pocket even though no money reached your bank account. As a US citizen you file and owe on this no matter where you live.

People assume their Israeli tax credits will wipe it out. They will not. The credit you build up for paying Israeli tax can only offset US tax on foreign income, and a Roth conversion is treated as US income, so those credits generally cannot reach it. What you actually control is the size of the bill, not whether there is one. You keep it small by converting in low-income years and sizing each conversion to fill only the lower tax brackets and the standard deduction.

One subtlety trips up olim in particular. If you use the foreign earned income exclusion to erase a big Israeli salary from your US return, the conversion does not get taxed in the low brackets you were expecting. It stacks on top of the excluded salary and is taxed at the higher rates that would have applied to that salary. So the exclusion, which usually helps, can quietly make a conversion more expensive. The fix is to convert in years when your earned income is genuinely low, or to model the return both with and without the exclusion before you decide.

A simple example shows the shape of it. Convert $50,000 in a low-income year as a single filer, subtract the standard deduction, and roughly $35,000 is taxable in the lower brackets, for about $4,000 of US tax, close to eight cents on the dollar. Inside the new-immigrant window, Israel adds nothing. Repeat that across a few low-income years and a large IRA moves into a Roth at a single-digit blended rate. Pay the tax from outside savings, never from the account itself, because paying it out of the IRA defeats the whole point.

When a Conversion Makes Sense, and When to Skip It

A conversion is not for everyone, and forcing it is a real way to lose money. It tends to fit when several things line up:

• A meaningful traditional IRA or 401(k) balance worth protecting from future tax.
• A low US-income year, which olim often have: the exclusion knocked out the salary, you are between jobs, or you are semi-retired.
• Cash outside the account to pay the tax, so the conversion stays whole.
• A long horizon, because you do not need the money soon.
• Future US tax you would rather avoid, since the balance will grow and forced withdrawals at 73 will push up your income anyway.
• A bonus if your heirs are not US citizens, because a Roth passes to them free of US tax while a traditional IRA is fully taxable to them.

Skip it when you would have to strain to pay the tax on money you are not receiving, when the balance is small or you will need it soon, when your future withdrawals would always sit in low brackets anyway, or in a high US-income year when the conversion would land in a high bracket. And converting after the window closes, purely to chase the Israeli exemption you have already lost, usually makes the math worse, not better.

The Traps: Pro-Rata, State Tax, the Five-Year Rule, and Reporting

Even when a conversion is right, four details catch people. Each is fixable if you see it coming.

• The pro-rata rule. If your traditional IRAs hold a mix of pre-tax money and after-tax contributions, you cannot cherry-pick and convert only the after-tax part. US law blends all of your traditional IRAs together and treats each conversion as coming proportionally from both, so more of the conversion is taxable than you might expect. It is worth mapping your accounts before you convert.
• State income tax if you have not fully left. If you were still a resident of a US state, such as New York, New Jersey, or California, for part of the conversion year, that state may tax the conversion as income even though you now live in Israel. Florida charges no state income tax, which is one reason we help clients nail down where they are domiciled before a big conversion year.
• The five-year rule. Money you convert generally has to sit in the Roth for five years before you can pull the converted amount out without a penalty, and each conversion runs its own five-year clock. This rarely bites someone converting for the long haul, but it matters if you might need the money soon.
• Currency and reporting. The conversion is measured in US dollars and reported by your account custodian, but your US filing life continues: foreign-account and foreign-asset reports still come due, and exchange-rate timing matters when you move money between shekels and dollars to pay the tax.

If you are behind on the foreign-account side, our guides to FBAR penalties and how to fix late FBARs and the streamlined filing compliance procedures cover the cleanup, and it is worth doing before a big conversion year, not after.

The Two Clocks: the Window vs. Your Low-Income Years

There are two clocks in this decision, and they often do not agree. The first is the new-immigrant window, which says convert early, within ten years of aliyah, while Israel exempts it. The second is the ordinary retirement-planning clock, which says convert in your low-income years, usually the gap after the paychecks stop but before required withdrawals and Social Security push your income back up around 73.

The two only overlap if you made aliyah near retirement. If you moved mid-career, the window falls in your peak-earning years, when a conversion is Israeli-exempt but US-expensive, and your genuinely low-income years arrive after the window has closed.

Because the US cost is certain and the Israeli benefit is grey, let the US bracket math decide. If you made aliyah near retirement, both clocks agree, so convert steadily inside the window. If you made aliyah mid-career, do not cram conversions into the window at high US rates just to catch an uncertain Israeli break. Convert modestly, or wait for your real low-income years and accept the post-window Israeli treatment, or have Israeli counsel seek a ruling. The one rule that always holds: do not overpay certain US tax now to chase an uncertain Israeli saving.

How This Fits Your Broader Olim Plan

A Roth conversion is one move on a much larger board. The same household usually has to sort out which investments to own so they do not trip the US rules on foreign funds, how an Israeli pension is taxed and reported, a US will and powers of attorney that work across two countries, and what the heirs will face. Done in the wrong order, one fix can undo another. Converting into a Roth is pointless if the money then lands in an Israeli fund that the US taxes punitively.

So we look at the conversion next to the rest of the plan: the funds you hold (see our guide to Israeli funds and the PFIC trap), how a foreign pension is taxed by the US, and the full estate plan for olim in Israel. One timing note worth flagging: if you are ever weighing giving up US citizenship, running conversions in your earlier, still-a-citizen years is a common piece of that plan, which we cover on our US exit tax page.

How We Work, and When We Refer

This is specialized cross-border tax, and we are clear about where our role sits. What we do is the planning and coordination: we screen whether the timing fits, we help pin down your oleh status and the exact dates your window opens and closes, we fit the conversion into your US estate and retirement plan, and we document a multi-year conversion schedule so the brackets are hit on purpose rather than by accident.

What we send out is the number-crunching and the foreign side. The year-by-year conversion modeling and your US tax return are handled with a US-Israel cross-border CPA, and the Israeli-side tax, including any ruling from the Israeli Tax Authority, is handled by Israeli counsel. The conversion itself is executed at your account custodian. We tell you which pieces your situation needs and connect you with the right people before you commit to anything. Most of our work runs remotely, by phone and video, which suits olim and Americans abroad. See the full international tax planning hub →

Frequently Asked Questions

Common Situations

The oleh who made aliyah near retirement. A couple moved to Israel a few years after the paychecks stopped, holding a sizable traditional IRA and living on modest income. Both clocks line up: they are inside the new-immigrant window and in genuinely low-income years, so the plan is a steady series of conversions, sized to the lower US brackets, that moves the IRA into a Roth over several years at a single-digit blended US rate while Israel adds nothing.

The mid-career oleh whose clocks conflict. An American who made aliyah in her forties is deep inside her new-immigrant window but also in her peak-earning years, with a big salary she excludes from her US return. Cramming conversions into the window would stack them at high US rates for an Israeli break that is not even certain. The plan is to convert modestly for now and line up larger conversions for her real low-income years later, with Israeli counsel weighing a ruling if the balance justifies it.

The family planning aliyah next year. A US couple is a year out from moving and holds a large traditional IRA. Because money converted before Israeli residency has the strongest case for clean Roth treatment, and because they have a low-income gap year before the move, the plan is to run a conversion now, with a cross-border CPA modeling the US bracket, rather than waiting until they are residents and into the grey area.

Sources of Law

• Roth conversions: 26 U.S.C. §408A (Roth IRAs) and §408A(d)(3) (converting a traditional IRA to a Roth); the recharacterization undo repealed by §13611 of the 2017 Tax Cuts and Jobs Act (conversions are irreversible); §408A(d) (the five-year holding period for converted amounts); §408(d) (the IRA aggregation, or pro-rata, rule). law.cornell.edu
• Required minimum distributions and basis: 26 U.S.C. §401(a)(9) (required withdrawals beginning at age 73; a Roth has no lifetime required distribution); §1014 (step-up in basis at death).
• Foreign earned income exclusion and the stacking rule: 26 U.S.C. §911 and §911(f) (the exclusion, the housing amount, and the rule that stacks non-excluded income, including a conversion, into higher brackets).
• Foreign tax credit and the net investment income tax: 26 U.S.C. §901 and §904 (credits limited to US tax on foreign-source income, so a US-source conversion is not sheltered); §1411 (the 3.8% net investment income tax, which the foreign tax credit does not offset).
• Israel (grey area, confirm with Israeli counsel): Israeli Income Tax Ordinance §14 (the ten-year exemption for a new immigrant's foreign-source income); §9(ג) and §9(b) (foreign-pension taxation and the practitioner-cited partial exemption, which is not settled for an IRA or Roth); US-Israel Income Tax Treaty Article 20(1) (private pensions), Article 6(3) (the saving clause that preserves US taxation of its own citizens), and Article 26 (relief from double taxation). irs.gov
• Comparative treatment (awareness only): Canada's treaty election and the "Canadian contribution" taint on a post-residency conversion (CRA Income Tax Folio S5-F3-C1); the UK Exchange of Notes that names Roth IRAs as a covered pension; and Australia, which gives a Roth no recognition. (retrieved 2026-07-16)

Updated on July 16, 2026. Reviewed by Kevin D. Klagge, Esq., Fla. Bar No. 99502. Attorney Kevin Klagge represents families, businesses, and international clients in estate planning and international law, with a focus on Florida legal tools. He litigates estate and business issues in court. This article is general information about US law, not legal or tax advice, and does not create an attorney-client relationship. A Roth conversion for an oleh is specialized cross-border tax: the firm screens the timing and coordinates the estate and retirement plan, while the year-by-year conversion modeling and your US return are handled with a US-Israel cross-border CPA, and Israeli-side tax and any tax-authority ruling are handled by Israeli counsel. Federal figures are adjusted periodically and may change, and the Israeli treatment of a Roth is unsettled. Your result depends on your specific facts.