Depositing a million shekels into a training fund and paying tax on it: why is it still worthwhile?

One of the articles in the "Calculating Retirement" column dealt with a fact that many do not know: the possibility of holding two training funds simultaneously, one as an employee and the other as a self-employed person. The main advantage is clear: enjoying double the great tax benefits, primarily a full exemption from capital gains tax, subject to the annual deposit ceilings, about 20.5 thousand shekels for the self-employed and about 18.8 thousand shekels for employees. Following that article, the chief economist of the Phoenix Group, Matan Shitrit, highlighted another, less known element.

A self-employed person can deposit any amount they wish into a training fund, even a million shekels a year, but only the recognized annual ceiling will enjoy the capital gains tax exemption.

For whom is it worthwhile to park funds in a training fund even beyond the ceiling, without the main "candy" of a tax exemption? It turns out there are quite a few advantages to this. Once again, as in the entire series of articles, these are only general guidelines, not a substitute for personal and professional advice that takes into account the personal conditions of each individual.

Reminder: why is a training fund considered the ultimate savings product?

A training fund is considered the most attractive investment product due to its great tax advantages. Beyond the deposit ceiling (about 20.5 thousand shekels per year), which is completely exempt from capital gains tax after six years of savings, there is also an income tax benefit.

Self-employed individuals who deposit up to 4.5% of their taxable income into the fund, up to a maximum amount of about 13.2 thousand shekels per year, enjoy recognition of this amount as a recognized expense.

If you are both an employee and self-employed, and own two training funds, you will indeed enjoy the capital gains tax exemption twice, subject to the ceilings, but the amount of the benefit that a self-employed person will enjoy in income tax will depend on the amount of contributions made for them as an employee.

Is the option to deposit above the ceiling open to everyone?

Apparently not, but only to those with "self-employed" status. However, as we explained extensively last time, the threshold conditions for this are extremely low. Today, it is very easy to open an "Osek Za'ir" (small business), a reporting track at the Tax Authority for those with a low annual turnover of up to 122.8 thousand shekels per year. Everything is done online and simply. Even a minimal income of tens to hundreds of shekels a year is enough to qualify for active self-employed status, which will allow opening a training fund for the self-employed. Employees can also do this in parallel with their work and status as employees.

The next step is to get started, which includes presenting the required documents to one of the institutional bodies that allow the management of a training fund.

If there is no capital gains tax exemption above the ceiling, what still makes the fund attractive?

As Matan Shitrit from the Phoenix Group explains, in self-employed status, one can deposit without an annual limit. The ceiling is relevant only for tax benefits, and funds deposited beyond it are subject to a real capital gains tax payment of 25% upon realization. So why is it still worth depositing above the ceiling? Because a training fund has other built-in advantages, and three of them are particularly prominent.

The first advantage is tax deferral. Unlike direct investment in securities or mutual funds through a regular trading account, in a training fund, money can be transferred between different investment tracks without a tax event until final redemption. Thus, for example, one can move from a high-risk stock channel to a more solid channel without paying a shekel of tax along the way.

A second advantage is the possibility of portability between bodies. Savings can be transferred between different insurance companies and investment houses without a tax event and without redeeming the funds. A similar model exists in a savings fund (Kupat Gemel Le-Hashka'a), but there the deposit ceiling is limited to only 83.7 thousand shekels per year. In a training fund, on the other hand, there is no deposit ceiling at all.

Beyond that, management fees are usually relatively low. An analysis of the "Gemel-Net" website data shows that the average management fees from the accumulation in training funds in 2025, among the ten largest bodies, stood at 0.62%. According to Capital Market Authority data, in savings policies the average is 0.74%, and in active mutual funds 1.3%. Another bonus is the possibility of receiving a loan on relatively attractive terms against the funds accumulated in the fund, similar to the situation in savings policies.

What about those who prefer to choose stocks or indices themselves, instead of a managed track?

The default in a training fund is a choice from built-in tracks offered by institutional bodies such as the general track, stock track, bonds, or tracks tracking the S&P 500. However, some bodies offer another alternative: a training fund in personal management (IRA).

"This is a huge advantage that does not exist in the alternatives," explains Shitrit. "There are savers who want to buy, for example, a broad global stock index, or specific financial products that simply do not exist in the regular tracks. In an IRA, the saver gets full control: management fees are usually even cheaper, the portfolio can be managed independently, and full tax deferral can be maintained. Beyond that, at any time, one can move from personal management in an IRA to active institutional management and back, without a tax event. This allows investing exactly in what one wants and still enjoying all the advantages of the training fund's shell." However, he emphasizes that this is not a product that suits everyone, and it requires deep understanding and experience.

Who can this solution suit?

Assuming you are self-employed, or intend to open a self-employed business, the option to deposit above the ceiling is particularly suitable for savers who hold significant liquid sums of money and are looking for an efficient investment platform with low management fees. A common example is employees who have realized stocks or options from work, or those who have received a high annual bonus, inheritance, or proceeds from the sale of a property. Instead of leaving the money in a current account or directing it to more expensive alternatives, depositing in a training fund in self-employed status allows parking large sums at once, enjoying full tax deferral, and using all the advantages of the fund's shell.

What are the disadvantages?

Alongside the great advantages, there are some questions that need to be asked before getting started. The first is how long you are willing to lose liquidity. In a new training fund, the money is locked for six years. If, for example, you planned to use this amount to buy an apartment in the coming year, this is probably not the appropriate alternative.

According to Shitrit, "Although these products are not intended for very short-term investment, those of you who are looking for yield transparency on a daily level - it can be found in a savings policy, and not in a training fund, where the yield is officially published once a month."

Here lies an important nuance: if you already have an active training fund in self-employed status, which has already accumulated six years of seniority and has become liquid, every additional shekel you deposit into it, even above the ceiling, will be liquid immediately, and on the profits above the ceiling, capital gains tax will of course be paid.

Another point concerns the withdrawal rules. Once you have withdrawn even one shekel from a liquid training fund, the fund is blocked for new deposits.

The money remaining in it will indeed remain completely liquid, but every new deposit you want to make will require opening a new fund, and the six-year count will start over.