No Blanket Tax Exemption at 65: Understanding Israeli Savings Benefits
Translated & summarized from Bizportal by baba
Contrary to popular belief, there is no general tax exemption for all Israelis at age 65. Specific tax benefits apply only to certain savings products like investment provident funds and study funds, with conditions related to age and withdrawal methods. Bank deposit interest is tax-exempt only for those born before 1948. Misleading advertisements often promote these conditional benefits to attract clients for pension agencies.
The story in 6 lines · by baba
- No universal tax exemption exists for all Israelis upon reaching age 65.
- Tax benefits on savings are product-specific and depend on eligibility criteria.
- Bank deposit interest is tax-exempt only for those born before January 1, 1948.
- Investment provident funds offer full tax exemption on profits if withdrawn as a pension after age 60.
- Study funds provide capital gains tax exemption after a holding period, with reduced periods for those over 67.
- Pension agencies use misleading ads about age 65 tax benefits to attract clients.
Many Israelis are led to believe that upon reaching age 65, they will receive a tax exemption on their capital market earnings. However, this is largely a misconception, with actual tax benefits being conditional on specific savings products and eligibility criteria.
For bank deposits and savings plans, a tax exemption on interest is only available to those born before January 1, 1948. Individuals born after this date, regardless of age, will pay a 15% nominal tax on interest income. Those who meet the age requirement can receive an automatic tax refund up to an annual ceiling of approximately NIS 15,000 for individuals or NIS 18,360 for couples.
Investment provident funds (Kupat Gemel Le'Hashka'ah) offer a significant tax advantage for individuals aged 60 and above. If funds are withdrawn as a monthly pension rather than a lump sum, all accumulated profits are fully exempt from capital gains tax. A specific provision, "Tikun 190," targets those aged 60+ meeting certain conditions, allowing lump-sum withdrawals taxed at a 15% nominal rate on profits, compared to the standard 25% real rate. This provision also offers full tax exemption on monthly pension payouts and tax-free inheritance for beneficiaries if the saver dies before age 75, or a 15% nominal tax rate thereafter.
Study funds (Keren Hishtalmut) offer a capital gains tax exemption after six years of holding, or three years for those aged 67 and above. Individuals aged 67 and still working can continue contributing to these funds, up to an annual ceiling of approximately NIS 20,500, benefiting from tax-free capital gains.
The misleading advertisements promising a tax exemption at 65 are often used by pension agencies as a marketing tactic to attract potential clients and encourage them to invest through the agency or its products.