Pension, Keren Hishtalmut and child savings for US citizens

Pension, Keren Hishtalmut and saving for children for US citizens

Pensions, Keren Hishtalmut and child savings are important savings tools in Israel, but for US citizens they may involve additional reporting obligations and tax consequences. This page explains how US citizenship affects these products, the difference between employees and self-employed people, and what to examine before depositing money, choosing a track or making a withdrawal.

Reading time: 9 minutes
Last updated: July 2026

Before you begin

If you are a US citizen living in Israel, it is important to know that long-term savings products such as a pension, Keren Hishtalmut (קרן השתלמות) and the Savings for Every Child program (חיסכון לכל ילד) may also be affected by US tax and reporting laws.

For most Israelis, these products provide significant tax benefits and are considered relatively straightforward. For US citizens living in Israel, the picture is often more complex because the United States may treat some products differently for tax purposes, require additional reporting or create complexity when the money is withdrawn.

This does not mean that you should avoid them—far from it. In many cases, pensions, Keren Hishtalmut and child savings can still be excellent tools. It is important, however, to understand the possible implications in advance so you can make better-informed decisions.

Employees versus self-employed people: why is the difference significant?

For pensions and Keren Hishtalmut, US tax rules make a sharp distinction between employees and people who run a self-employed business:

Employees versus self-employed people

If you are an employee	If you are self-employed
Your pension savings and Keren Hishtalmut are managed and funded together with your employer. Because this is a customary workplace arrangement, the US tax authorities—the IRS—tend to treat these products more leniently and simply, reducing the risk of special tax complications.	You deposit the money yourself and directly control the savings. Unfortunately, this control creates much greater complexity. The IRS examines your savings more closely, which may lead to complex reporting obligations, problematic classification of the fund and unexpected tax consequences.

Savings for Every Child for US children

When your child is a US citizen, choosing the savings track in the national Savings for Every Child program is a critical decision. The state allows you to choose between two main tracks, and that choice has a dramatic effect on your US reporting obligations:

The two savings tracks

Kupat Gemel track (capital-market investment)	Bank track (closed savings account at a bank)
This track is very popular in Israel because of its return potential, but it may create major complexity for a US child. A Kupat Gemel (קופת גמל) is classified in the United States as a foreign investment fund, or PFIC, leading to strict tax rules and complex annual reporting to the IRS. The accountant's professional fee for these filings is often higher than the entire amount accumulated in the child's savings.	This is a conservative track in which the money earns fixed interest at a commercial bank. From the perspective of the US tax authorities, it is considered entirely straightforward and transparent and does not require the complex and expensive capital-market reporting.

Kupat Gemel track (capital-market investment)

Bank track (closed savings account at a bank)

This track is very popular in Israel because of its return potential, but it may create major complexity for a US child. A Kupat Gemel (קופת גמל) is classified in the United States as a foreign investment fund, or PFIC, leading to strict tax rules and complex annual reporting to the IRS. The accountant's professional fee for these filings is often higher than the entire amount accumulated in the child's savings.

This is a conservative track in which the money earns fixed interest at a commercial bank. From the perspective of the US tax authorities, it is considered entirely straightforward and transparent and does not require the complex and expensive capital-market reporting.

Pension, Keren Hishtalmut and saving for children for US citizens

Before you begin

How does US citizenship affect pensions and savings?

Employees versus self-employed people: why is the difference significant?

Employees versus self-employed people

The PFIC trap: what does it mean in simple terms?

Another point worth knowing, beyond taxation

What about the taxation itself?

Pension and Keren Hishtalmut: what is important to know?

Points worth checking

Savings for Every Child for US children

The two savings tracks

What about withdrawing money?

Action plan: when is it especially important to seek advice?

It is advisable to consult a professional when:

The bottom line

Frequently asked questions

In summary