Study Highlights Significant Tax Savings from Extended Investment in Israeli Study Funds

An analysis reveals that individuals who leave NIS 180,000 in their study fund (Keren Hishtalmut) for ten years after it becomes liquid can accumulate an additional NIS 124,564 in tax-exempt profits. This contrasts with a regular investment portfolio, which would yield NIS 283,278 after capital gains tax, resulting in a difference of NIS 21,286 in favor of the study fund. A new calculator allows individuals to compare immediate withdrawal versus waiting five, ten, or until retirement, based on personal data.

Study funds are presented as a significant benefit for salaried employees in Israel. Employers contribute 7.5% of the salary and employees 2.5%, with profits being entirely exempt from capital gains tax, unlike other investment avenues where a 25% tax is levied. The employer's contribution is also not considered taxable income for the employee up to a certain ceiling, offering a dual tax advantage. Funds become liquid six years after the first deposit, though early withdrawal for recognized study or upon reaching retirement age allows access after three years. Early withdrawals are taxed on the entire amount, principal and profit, leading the tool to suggest taking a loan against the balance instead.

The calculator considers six inputs: fund balance, years since opening, age, monthly salary, estimated yield, and management fees. The fund's age is critical for determining liquidity and potential waiting periods. Management fees, even seemingly small ones like 0.6%, can significantly erode returns over time. The article emphasizes that management fees are negotiable and can be reduced by switching to a cheaper provider without losing the fund's accumulated tenure. The salary ceiling for the tax benefit is NIS 15,712 per month, and the calculator warns if the entered salary exceeds this, indicating a reduced actual benefit.

The comparison with taxable portfolios assumes a 25% capital gains tax and 2% annual inflation. The longer the waiting period, the greater the divergence between the two options, as the tax-exempt profit continues to grow while the taxable portfolio is subject to deductions. The article also notes that fund performance varies significantly between management companies, with leaders like Altshuler showing a 1.1% positive return in August for their general track, highlighting that low fees, good management, and preserved tenure can add tens of thousands of shekels to the final balance without additional employee contributions.