What is Amendment 190?
In 2012, Israel signed into law a new amendment that provides extensive benefits to pensioners in the field of available funds management (prerequisites: age 60 and up and having a pension of at least 4,500₪ per month). It fixes past wrongs in the field and encourages pensioners to save money and manage their money better than they did in the past.
Amendment 190 to the Income Tax Ordinance is intended for depositing available funds into provident funds – from the checking account, from short-term deposits, and from investment portfolios. Thanks to the amendment, one can now deposit personal savings into a provident fund, benefit from all the advantages of a normal provident fund, and withdraw the money after age 60. This can be done in two ways:
- As a monthly stipend, which is tax exempt for life.
- As a one-time withdrawal – at a nominal tax rate of 15% from the relative gains component, as opposed to a real 25% tax rate, which is the customary tax rate in securities investments.
Advantages:
- A significant reduction in service charges: no management fees to the bank, no service charges for buying and selling, no minimum service charges, no expensive mutual funds in the portfolio.
- A lower taxation rate than a normal investment portfolio: the tax is 15% of the nominal gains instead of 25% of the real gains (in most years, this is a significant reduction).
- Tax deferral: the tax is paid only when the person exits the program and not each time a security is sold at a profit. This means that instead of the tax itself being deducted from the portfolio’s value, it remains a part of the investment and thus yields gains for the client.
- The option of a partial or full capital withdrawal from the remaining funds in the account – at any point and subject to the withdrawal conditions. This is a financial instrument that, along with its other advantages, provides high solvency for investments of large amounts (as stated, aside from a stipend of 34,452₪, the whole deposit amount is solvent).
5. Changing investment channels: according to Amendment 190, in a mutual fund, one can transfer between a wide range of investment channels and investment houses at any given moment – from general to stock, from stock to bond, etc. – all free of charge and with no tax payment.
6. The option of investing in non-tradable assets, which are usually considered safer and less volatile. Thus, provident funds usually yield their holders a higher yield than managed investment portfolios, even when both are from the same investment house.
7. Unique options for generational inheritance: when the fund is transferred to the inheritors, its original conditions remain. Thus, the inheritors may continue to withdraw the money from the fund with no capital gains tax payment if the member passes before age 75; or, if the member passes after age 75, at a capital gains tax payment of 15% of the nominal gains.
8. Full transparency of the yields and the ability to compare the different bodies.
9. Receiving a stipend: funds that were deposited under Amendment 190 will be exempt from stipend tax.
