Keren Hishtalmut tax benefits

What is Keren Hishtalmut?

A Keren Hishtalmut is an Israeli tax efficient savings account for individuals. If you meet the conditions, you'll not only save tax when you put money in, but also save tax whilst your savings earn profits. After several years, you can withdraw the money tax free and spend it how you like. The Keren Hishtalmut tax benefits are designed to encourage both employed and self-employed individuals to save a small part of their income each year.

What are the Keren Hishtalmut tax benefits?

1. The amount you deposit into your Keren Hishtalmut will be treated as a tax-deductible expense during the year that the deposit is actually made.
2. The profits which accrue in your Keren Hishtalmut savings account won't be taxable.
3. Once 6 years have passed since the opening of your account, you can withdraw all the savings together with the accumulated profits, tax free.

A small example to better understand:

Imagine you have taxable income of ILS 200,000 and you deposits ILS 9,000 into a Keren Hishtalmut savings account:

1. The 9,000-shekel deposit into your Keren Hishtalmut is treated as an expense. So, you won't pay tax on your full 200,000shekel income, rather you'll only pay income tax on what's left in your pocket 191,000 shekels.
2. The Keren Hishtalmut invests your 9,000 shekels and generates profits. Let's say that the total accumulated profit over 6 years is 5,000 shekels. So, your balance will be (9,000 + 5,000) 14,000 shekels.
3. Once the 6 years are up, you can withdraw the full 14,000 shekels without paying any tax.

How much can I deposit into my Keren Hishtalmut each year?

Whilst the Keren Hishtalmut tax benefits are great, there is a limit to how much you can deposit each year and still enjoy the tax benefits.

1. Deposits into a Keren Hishtalmut will be treated as a tax expense (so you'll save paying income tax on those earnings) provided your total deposits for the year meet the following conditions:
   - not more than 4.5% of your taxable income, and
   - less than a total of ILS 11,835 (2021)
2. You can deposit more than the limit if you want, although the excess won't be treated as a tax expense. However, the profits generated in the savings account will still be tax free provided your annual contribution doesn't exceed ILS 18,480 (as of 2021).

When can I withdraw funds from my Keren Hishtalmut?

Once 6 years have passed since the Keren Hishtalmut was opened, you can withdraw all the funds in the account tax free. There are no restrictions on spending the funds, and you can withdraw both the capital and profits accrued for any purpose without paying tax.

Some Tips

1. The first year is treated as a full year, even if the account was only opened part way through the year. For example, if you open the account in December of 2020, you'll be able to withdraw the funds tax free any time from 1^st January 2026.
2. Once 6 years have passed since your first deposit, you can withdraw all the funds in the account, even deposits which were made more recently.

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