If you’re in a high tax bracket in the United States, you may own some municipal bonds in an effort to minimize your tax bill.

First of all, what are muni bonds? As their name suggests, these are issued by government entities. When you purchase a municipal bond, you are essentially lending a sum of money to the issuer for a set period. Over this time, you receive interest payments and once the bond matures, you are paid back the original sum of money that you invested (presuming that the issuer doesn’t default).

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In the United States, the great thing about buying “munis,” as we often refer to municipal bonds, is that some of them are tax exempt, meaning that the income they generate may not liable to federal, state, or even local income taxes (check with your accountant to understand your specific situation).

So what happens if you are a municipal bond holder and you decide to make aliya and move to Israel?

As an Israeli citizen, you are required to report your income worldwide to the Israeli tax authorities, and pay taxes on it. Israel taxes income from municipal bonds because the Israeli government doesn’t recognize the beneficial U.S. tax status that these bonds hold. As of May 2012, the tax rate you would pay on the interest would be 25%. New olim may still enjoy a tax break on all of their investments based on the 10-year tax holiday that they get. However, in many cases, when you move to Israel, you might want to consider selling your municipal bonds, because due to their tax-advantage status, munis tend not to have as high yields as other bonds. If you’re looking for fixed income, consider other types of bonds (such as corporate bonds, treasury bonds, and even bank deposits). As with all investments, there are risks with every type of bond, so be sure to get personalized advice from a licensed professional before investing.

Bond trading can be complicated, but I’ve tried to simplify a few of the important concepts in my article, Premium Bonds Are Not The Opposite of Junk Bonds.

If you are still concerned about what holding a potential oleh (immigrant to Israel) or new oleh should have in his investment portfolio, consult a financial planner with knowledge of the markets on both side of the Atlantic for further advice.

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Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning and investment services firm specializing in working with Americans living in Israel who have investment accounts in America. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Contact at [email protected]