A training fund is an investment channel designed for employees and independent contractors. This fund grants tax exemption on capital gains (bounded by the deposit cap).
Money that has accumulated in the fund can be withdrawn 6 years after the first deposit; if the client reaches the age of retirement, they can withdraw the money 3 years after the first deposit. Money withdrawal is exempt from tax (tax exemption from the capital gains tax is bounded by the cap). The recommendation is to continue and save even after.
When a person deposits money into a training fund, the employer conducts a parallel deposit at their expense. This sum constitutes a tax incentive since it is income that is exempt from tax on the salary (bounded by up to 7.5% of the salary and by that year’s tax salary cap). Money that is withdrawn from the training fund is also tax exempt, which constitutes another tax incentive (the capital gains tax is bounded by a cap).
Employees, as well as independent contractors, can save for various goals, which includes opening a training fund.
A person that saves using a training fund, whether they are an employee who is depositing alongside their employer or whether they are an independent contractor, might enjoy tax-exempt revenue.
Due to payments (up to the deposit cap), money that has accumulated in the fund can be withdrawn at the date of eligibility.
Should you withdraw the accumulated money after 6 years?
The answer – if there is no real need for the money, it is better to not withdraw it. There are several reasons for this:
- This is the only savings with no tax – nowadays, this is the only capital savings plan in Israel from which money (up to the cap sum) can be withdrawn without paying taxes, including tax on realized gains.
- The right to withdraw the accumulated sum in the fund with no tax after 3 years for a client that has reached the age of retirement and for further professional education in Israel and abroad.
- There is no requirement to withdraw the money. For the client, that means that they can continue to save in such a fund for many years and still have the right to withdraw the whole accumulated sum at any moment without paying tax, even for deposits that were carried out after 6 years have passed and for their yields.
Beneficiaries of a client that has passed away may withdraw the accumulated money regardless of the time that has passed since the client’s membership in the training fund began.
In a training fund for independent contractors, there is no need to continue conducting deposits every month. An inactive client can withdraw the money from the fund just like an active client and according to the same exact rules.
Partial withdrawal of the accumulated funds in the training fund: if the need to use some of the money arises, you can do so (after the eligibility date) and leave the rest of the money in the fund. After withdrawing money from the training fund, the account closes for additional deposits; if the client is interested in continuing to deposit money, a new account will open for new deposits, from which they can withdraw tax exempt money according to the above-mentioned rules.
Despite the tendency and the temptation to continue withdrawing the money that has accumulated in the training fund after 6 years, you should know that it can be left in the fund. This way, you can continue to enjoy the right to withdraw the savings at any moment, including new deposits and the gains that have accumulated in the fund, while maintaining the right for tax exemption.
