We recently did a series of short videos on social media about Kranot Hishtalmut, and in order to round off the topic, we are bringing it home in this month's blog.
Most people reading this who live in Israel will know in general what a Keren Hishtalmut is, namely a savings fund that you can pay in to from employment income, that has income tax benefits on contributions, and whose investment gains are tax free as long as you hold the fund for a minimum of 6 years. This, however, is usually where people's knowledge ends!
So in order to enlighten you as to some of the lesser-known features of these incredibly tax-efficient savings vehicles, we give you 5 things you didn't know about Kranot Hishtalmut:
1. What can I invest in? - Each company has 6-7 investment tracks to choose from, ranging from 100% shares to 100% bonds, and tracks which have a mix of both. You should look at each 'track' as a managed fund, with fund managers in the company you have chosen actively managing your investments.
2. Are there any options to simply track an index? Yes. There are companies that offer an S&P 500 track. This means that you can track the S&P 500 - tax free.
3. Can I manage my own Fund? Also yes. (I am sure that surprised many of you.) There are a few companies that allow you to self manage. The minimum to invest is often 50,000 shekel, and these monies would need to come from your existing liquid Kranot (i.e. ones that have passed the 6 year mark).
4. Do I really have to wait 6 years to withdraw funds? - No. If you are over the retirement age, or are using the fund to pay for further education then you only need to wait for three years. Also if you have an old fund, and some time later opened a new fund, then your new fund becomes liquid when the 6 years have passed since opening your old fund! (This is a trick many people don't know about.)
5. Should I withdraw money from my Keren Hishtalmut? Many people aren't aware that you can borrow against your fund at interest rates far lower than the banks. If you can afford the (usually very low) monthly repayments, then we think that this is definitely a better option than withdrawing from the fund and losing the future tax benefits.
At IAL we offer English-speaking services for your Keren Hishtalmut, including facilitating, placing and optimising your holdings and management fees. Contact us now to see how we can help you with your Keren Hishtalmut holdings.