A study fund is a savings fund for salaried employees and the self-employed alike. It was originally intended to serve such employees in financing their advanced study programs (such as professional conventions and continuing education), but today it serves primarily as a mid-term general savings channel – the only non-long-term channel still exempt from tax following the Israel’s capital market taxation reforms.
First, some history. Study funds in Israel began as a savings provident fund intended to finance advanced study programs and professional conventions, associate degrees or continuing education programs for teachers and other professionals. Today, the money may be used for any purpose and the fund still offers the same attractive terms. See below for elaboration on the exact benefits provided by this savings channel.
A study fund can only be opened by an employer opening one for his employees or by a self-employed person opening one for themselves.
Proper savings in a study fund can translate, down the line, into profits of tens and even hundreds of thousands of shekels.
In most cases, the employee under whose name the fund is opened will deposit approximately 2.5% of their wage every month, and their employer will deposit up to 7.5% of the wage. The deposits into the fund can be out of the full wage, but in most cases they are made up to a wage limit of 15,712 shekels, a limit up to which the employer’s deposits are not considered to be income held by the employee, and accordingly the employee does not pay the amount of the tax for the employer’s deposit. Also, up to that limit, the profits accrued by the fund will be exempt from capital gains tax.
The self-employed population has two different limits:
Deposits can be made regularly (monthly deposits), as a lump sum (usually at the end of the year) or in a combination of these options.
You can naturally also deposit amounts in excess of the limit, but the tax benefits will not apply beyond these limits.
The returns obtained from study funds arise from investing the fund’s assets in various instruments such as securities and non-negotiable assets, and from the profit gained from such instruments’ appreciation.
When you select and open the study fund, you have to select your desired investment track. The track defines the policy for investing the funds and can roughly be broken down to the following categories:
All the above is qualified by the fact that returns can almost never be guaranteed, and even if a certain study fund achieved excellent returns in the past, there is no guarantee that it will continue doing so in the future.
A study fund becomes liquid after six years of seniority (withdrawal of a study fund of less than six years will be charged with either 45% tax or with marginal tax, whichever is higher). After six years of savings, the fund can be redeemed without paying income tax and without paying capital gains tax for the profits accrued (up to a limit). However, if you are patient and withdraw the money only upon reaching the age of retirement, you can avoid paying capital gains tax and also enjoy the return accrued in the fund over the years – which grows exponentially every year thanks to the compound interest effect.
There are three exceptions allowing you to make a tax-free withdrawal of the money after a period of less than six years. They are as follows:
A study fund is a mid- and long-term savings plan, and as such, the monthly deposits should express your financial goals for the distant future. There are plenty of study funds, offering different investment tracks and different performance, and your selection of a fund and of investment tracks will determine the profits and returns you will eventually obtain. This choice can have considerable impact on your future financial welfare. Kali’s experts will help you select the study fund, or the combination of funds, precisely tailored to meet your needs and your definition of a secure financial future. After we complete the planning and fund selection stage, we will monitor your fund’s long-term performance.