Why the training fund is the best tool available
In Israel, almost every long-term financial savings vehicle is taxed. Capital gains — 25%. Dividends — 25%. Interest — 15–25%. The training fund (keren hishtalmut) is a complete exception: its earnings are entirely tax-free, after six years of saving.
On money that grows 7% a year for twenty years, this benefit is worth hundreds of thousands of shekels. This isn't a luxury — it's a fundamental change to your final wealth.
How it works
Salaried employees contribute 2.5% of their salary, and the employer adds 7.5% — a total of 10% in monthly savings. The amount up to the recognized ceiling counts as an expense and is exempt from income tax at the time of deposit. After six years, you can withdraw the entire amount — the full value of the fund — tax-free.
Self-employed individuals can also contribute to a training fund — up to an annual ceiling — and receive a tax benefit on the deposit in addition to the exemption on earnings.
💡 Self-employed: the training fund is one of the few ways to get both a tax reduction on the deposit and an exemption on the earnings. That combination barely exists in any other instrument.
The three common mistakes
1. Withdrawing at age 45 because "you're allowed to"
From age 45, you can withdraw a training fund tax-free even before six years (under certain conditions). But should you? Money that is withdrawn stops growing. Every year the money stays — it works for you.
2. Leaving the money in the default track
The default track in a training fund is usually a general track with moderate exposure. If you're far from retirement, it's worth considering a track with higher exposure to equities, which on average delivers a higher return over time.
3. Not opening one at all — because "it's complicated"
Opening one takes 20 minutes. The "complicated" part is looking back, in the end, at how much unnecessary tax you paid.
What to check in your existing fund
- What are the management fees? (typical: 0.3%–0.8% of accumulated savings)
- What is the track? (equities, index, general?)
- When was the fund opened? (this determines when you can withdraw tax-free)
- Is the employer contributing the maximum?
People who checked these points saved, on average, tens of thousands of shekels over their saving years.
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