This is the most worthwhile tax benefit. Here is how to enjoy it twice
Tax benefits on deposits and a full exemption from capital gains tax after six years make Keren Hishtalmut the ultimate savings product. Despite the annual deposit ceiling, some can enjoy the benefit twice: how does combining employment as an employee with self-employed activity allow holding two funds simultaneously? Retirement experts answer critical questions about retiring in a new column.
Keren Hishtalmut (advanced training fund) is considered the ultimate savings product. With extensive income tax benefits and a full exemption from capital gains tax, it has long ceased to serve only its original purpose of "advanced training" and short-term savings, but rather as a key tool for accumulating significant capital for those who invest for long periods and enjoy the benefit of compound interest.
The main downside: you cannot deposit an unlimited amount into it, as you can with a savings policy, for example. There is a ceiling, both for employees and for the self-employed, which stands at a maximum of about 19,000 to 20,500 shekels per year.
In the "Calculating Retirement" series of articles, we will examine this time how one can enjoy double the benefits of the extensive Keren Hishtalmut advantages, and for whom it might be less worthwhile. Once again, this should not be seen as a substitute for professional advice tailored to your needs.
Main differences between Keren Hishtalmut for employees and the self-employed
"The fundamental difference lies in the deposit mechanism, the recognized ceilings, and the type of tax benefits that the state grants in each track," explains Yogev Ben Ziv, manager of long-term savings and finance at Migdal Insurance and Finance.
For employees: The deposit is conditional on the employer's consent. The limitation is a deposit of 10% of the salary (usually 7.5% at the employer's expense and 2.5% at the employee's expense). An income tax benefit is granted up to a monthly salary ceiling of 15,712 shekels, an amount from which and below the employee does not pay "tax value" on the employer's portion. In addition, there is a full exemption from capital gains tax (25% real) on the yield accumulated from these deposits. Ultimately, the aggregate deposit ceiling stands at about 18,800 shekels. This amount is not CPI-linked.
For the self-employed: "Every registered business owner manages the deposits themselves. Here there are two separate tax benefits," explains Ben Ziv. "Recognized expense (tax deduction): a deduction of up to 4.5% of taxable income, up to a ceiling of eligible income. That is, a maximum benefit on a deposit of about 13,200 shekels per year. Exemption from capital gains tax: one can deposit up to 20,520 shekels per year and enjoy a full tax exemption on profits." Unlike the ceiling for employees, which has not been updated for over 20 years, the ceiling for the self-employed is updated once a year according to the Consumer Price Index.
Who is eligible to open a Keren Hishtalmut?
The answer is everyone. "A fund in the status of an employee is opened for an employee for whom the employer makes contributions in accordance with the employment agreement, a collective agreement, or an extension order. A fund in the status of a self-employed person is open to those who have activity and income from a business or a profession," explains Tomer Cohen, CEO of Cohen Family Office from the Barak Finance group.
Can a person who is both an employee and self-employed hold two funds simultaneously?
"Absolutely. Someone who wears two hats, both working as an employee and managing an independent business, is entitled to hold two funds simultaneously. As an employee, the employer contributes as usual up to the stated ceiling," says Ben Ziv.
"As a self-employed person, you submit the annual report to the income tax authorities, and there the calculation is made. However, it is important to emphasize: to open a fund as a self-employed person, you must hold an active file with the tax authorities that generates income. You cannot invent an employer or open a fictitious file just to enjoy the benefits."
What if my self-employed income is low?
"Even small independent activity can allow holding an additional fund. However, the recognition of the deposit as an expense is limited to 4.5% of taxable income. On the other hand, one can enjoy the exemption from capital gains tax on deposits to the fund for the self-employed up to the annual ceiling — 20,566 shekels in 2026 — even when the independent income is low," says Cohen. Ben Ziv adds that "you can bring money from home, deposit the maximum amount, and enjoy a full exemption from the 25% tax on the profits generated in the fund, though one must weigh the bureaucratic costs."
Using seniority to withdraw funds earlier
"Through a mechanism known as 'applying seniority,' someone who holds an old and liquid Keren Hishtalmut in the status of an employee (with at least six years of seniority) may use its seniority to withdraw all funds from the young fund in the status of a self-employed person, even before six years have passed since its opening," says Cohen.
"Applying seniority is possible only once and only when at least one of the two funds is in the status of an employee. The procedure cannot be performed if a withdrawal has already been made from the old fund in the past."
"Keren Hishtalmut is the premium product of the savings world in Israel," concludes Ben Ziv. "The most common mistake of savers is to rush and withdraw the money as soon as it becomes liquid. It is better to leave the money in the fund so that it continues to accumulate tax-exempt yield. Withdrawing from the fund should be the last resort."
