What if I told you that you or your parents could make Aliyah before 2026, make $90,000 annual income, and pay zero tax to the U.S. or Israel?

A retired couple over 65 could pack up their lives, move to Israel before 2026, and still enjoy a $90,000 annual income without paying a single dollar in tax to either country!

That may sound too good to be true. But thanks to a combination of updated U.S. tax law and favorable Israeli tax laws, this outcome is not only possible, it’s relatively common for those who plan wisely.

Let’s walk through what types of income are involved, how the latest U.S. tax legislation affects retirees, and why Israel’s tax rules often work in tandem to produce a win-win for those spending their golden years abroad.

Key Takeaways

• U.S. Social Security benefits are tax-exempt for Israeli residents under the U.S.–Israel tax treaty.
• A retired couple can fully offset $45,000 of IRA income using standard and senior-specific U.S. deductions.
• Israel’s 10-year tax holiday and Section 9(3) shield many retirees from paying Israeli tax on U.S. income.
• Breaking U.S. state residency is a critical, often overlooked step in avoiding double taxation.
• New U.S. tax laws, including the 2025 bonus deduction, create a rare window for ultra-efficient retirement planning.

Step One: Understanding the Couple’s Income

Let’s say the couple in question is both over 65. They recently retired and moved to Israel for family reasons, quality of life, or to enjoy a new chapter. Between the two, they receive $45,000 in annual Social Security benefits. This is very much in line with the national average for retirees in their age bracket.

On top of that, they also receive $45,000 per year from their IRA, 401K, or other retirement account that they saved into during their working years. They are taking required minimum distributions, and can decide to take out more if they want.

Together, that brings their total income to $90,000 for the year. The question now becomes: how much tax would this couple owe in the United States and Israel?

Step Two: U.S. Tax on Social Security Benefits

Social Security income is often partially taxed in the U.S. under standard rules, especially when retirees have other sources of income. 

In this case, the couple is moving to Israel. Under the U.S.-Israel Tax Treaty, Social Security benefits paid to residents of Israel are exempt from U.S. taxation. In plain English, Uncle Sam does not take a cut from those monthly checks.

So that entire $45,000 in Social Security is off the table when calculating their U.S. taxable income. 

Step Two-and-a-Half: Breaking State Residency

Before enjoying full U.S. tax exemption, retirees must make sure they are no longer considered residents of their former state. Why? While the federal government may exempt your social security income, some states still have high levels of taxation, and our goal here is to get out of all U.S. taxes.

Each state has its rules for determining residency, but most look at a combination of physical presence, driver’s license, mailing address, and ties to local organizations. Simply leaving the country isn’t always enough.

To officially break state residency, couples should take clear and documented steps: sell or rent out their U.S. home, establish foreign residency with Israel’s Ministry of Interior, and switch to a U.S. mailing address in a state with no income tax or Israel if needed.

Doing this cleanly ensures that the state can no longer tax their IRA withdrawals or attempt to tax their worldwide income. It’s one of the most overlooked parts of international tax planning, but essential to keeping that zero-tax promise intact.

Step Three: U.S. Tax on IRA Distributions

That leaves us with the $45,000 they are taking from their IRA.

Typically, IRA distributions are taxable at ordinary U.S. income tax rates. But 2025 brings a set of new rules that radically change the math for retirees.

Here’s how the numbers break down under current law:

• The standard deduction for a married couple filing jointly in 2025 is $30,000. It should be even higher for 2026.
• Because both spouses are over 65, they each get an additional age-based deduction of $1,600. That’s $3,200 more.
• And here’s where things get very interesting. The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, adds a brand-new bonus deduction of $6,000 per senior filer. That adds another $12,000 to their deduction.

Add it all together: $30,000 + $3,200 + $12,000 = $45,200 in total standard deduction.

That deduction wipes out all $45,000 of their IRA income. In fact, they’d still have $200 of unused deduction leftover. Their total U.S. taxable income would be $0.

Step Four: What About Israeli Taxes?

Let’s now look at the Israeli side of the equation.

First, Israel has a 10-year tax holiday, during which they don’t tax income from sources outside the country.  This means that both Social Security and the IRA distributions would be exempt.  But maybe they aren’t new Olim. Perhaps they have lived in Israel for 20 years already?  They should still be covered!

That same $50,000 in Social Security income is also tax-exempt in Israel. That’s again due to the U.S.-Israel treaty, which Israel honors in practice. In other words, neither government taxes that benefit.

Second, the IRA distributions.

Israel has a special provision in its tax law—Section 9(3), or as it’s known in Hebrew, “Tesha Gimel.”

This section provides that Israel only taxes foreign pensions if they would be taxed in the U.S. first. If the pension income is not taxed in the U.S. (because of deductions or exemptions), then it is typically not taxed in Israel either.

In this case, the U.S. standard deduction fully offsets the IRA income. It creates no U.S. taxable income, so under Israel’s rules, it likely creates no Israeli tax.

What Makes This Legal?

This isn’t a loophole. It’s not aggressive planning. It doesn’t involve offshore trusts or complicated strategies.

It’s the natural result of three systems working in harmony:

1. U.S. standard deduction rules and senior benefits
2. The U.S.-Israel tax treaty
3. Israel’s Section 9(3) exemption structure

Each of these provisions was built to protect retirees and incentivize smart saving. When used together, they create one of the most tax-efficient retiree scenarios in the world.

A Caution on Future Years

While 2025 looks incredibly favorable, retirees should keep an eye on changing laws. The OBBB bonus deduction is only guaranteed through 2028. After that, it may sunset unless renewed by Congress.

In addition, exchange rates and investment returns can affect how much IRA income a retiree needs to withdraw, potentially pushing them into taxable brackets.

Working with a U.S. tax advisor who understands cross-border issues is essential.

If you need help planning your retirement in Israel or filing U.S. taxes once you get here, be in touch! 

What are you waiting for?  A sign in the sky?  You’ve got about 1,000 of those already over the past year!