Tax Benefit for Savings Policies Can Save Thousands Before Year-End
Translated & summarized from Maariv by baba
Israeli savers with investment policies can claim a tax benefit of up to 4,590 shekels by acting before the year ends. This involves a "notional redemption" to realize profits without withdrawing funds, utilizing an annual tax exemption ceiling. Experts urge proactive engagement, as potential regulatory changes could eliminate this benefit in its current form. The tax advantage is particularly significant for the elderly population.
The story in 5 lines · by baba
- Tax benefits on investment policies can save Israelis up to 4,590 shekels if acted upon by year-end.
- A "notional redemption" allows savers to realize profits for tax purposes without withdrawing funds.
- The tax benefit is linked to an annual profit ceiling, which does not accumulate if unused.
- Potential regulatory changes may eliminate savings policies in their current form, making year-end action crucial.
- This tax advantage is considered one of the most significant financial benefits for the elderly in Israel.
Israeli savers with investment policies can still benefit from a significant tax advantage before the end of the year, potentially saving up to 4,590 shekels. This benefit is tied to a profit ceiling for tax exemption, which stands at approximately 15,000 shekels for an individual, translating to a tax saving of up to 3,750 shekels. For couples, the joint profit ceiling reaches 18,360 shekels.
The core of this tax advantage lies in the ability to switch investment tracks within the policy without triggering a taxable event. This allows individuals to adjust their investments without immediately paying taxes on accumulated profits. According to Atia, CEO of the Center for Financial Planning, these profits are classified as interest income for the purposes of Section 125d, enabling eligible individuals to utilize the tax benefit.
To access this benefit without withdrawing funds, a procedure known as a "notional redemption" is employed. This involves redeeming and then re-depositing funds into the policy, realizing profits for tax purposes while keeping the money invested. Atia describes this as one of the most substantial financial benefits offered by the state to the elderly, but stresses that it requires proactive engagement.
Savers who do not perform this action may miss out on utilizing the annual ceiling and could face higher taxes on profits in the future. Atia emphasizes that the benefit does not accumulate; any unused portion of the ceiling in a given tax year is forfeited. He advises contacting insurance companies in advance, completing the necessary forms, and inquiring about required documentation for the refund.
While this advice is relevant at the end of every tax year, Atia particularly urges eligible individuals to act this year due to uncertainty surrounding the future of this benefit. Discussions by an arbitration committee examining disparities between short and medium-term savings and investment instruments, including savings policies, could lead to changes affecting these tax benefits, potentially even removing savings policies from the market in their current form. Therefore, he recommends maximizing the existing benefit while it is still available.
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