Keren Hishtalmut (קרן השתלמות): The Cherry on Top
A Keren Hishtalmut (קרן השתלמות) is a medium- to long-term savings plan that combines flexibility, the option to withdraw funds after six years, and significant tax benefits. This page explains how it works for employees and the self-employed, the available limits and tax benefits, and how choosing a managing body and investment track can affect the amount accumulated over time.
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A Keren Hishtalmut (קרן השתלמות) is one of the most popular and worthwhile savings vehicles in Israel. Although many people tend to confuse it with a Pension, it is an entirely different product: medium- to long-term savings not necessarily intended for retirement age, with exceptional tax benefits.
What is the difference between a Keren Hishtalmut (קרן השתלמות) and a Pension?
- Flexibility and Liquidity
- Unlike a Pension, the money in a Keren Hishtalmut (קרן השתלמות) can be withdrawn as a lump sum (rather than as a monthly annuity) after just 6 years from the date of the first deposit.
- Purpose of the funds
- Historically, the fund was intended to finance professional training, but today it serves as savings for any purpose—from a family vacation to a long-term investment.
- Contribution requirement
- Unlike a Pension, there is no legal obligation to contribute to a Keren Hishtalmut (קרן השתלמות), and it is considered a voluntary benefit.
Keren Hishtalmut (קרן השתלמות) for employees
For employees, this is one of the most significant benefits. Contributions are generally split between the employee and employer, so most of the savings comes from the employer.
- Employer contribution
- Approximately 7.5% of salary.
- Employee contribution
- Approximately 2.5% of salary (deducted from net pay).
- Eligible salary cap (2026)
- Tax benefits are granted up to a salary cap of 15,712 NIS per month. Contributions can also be made above this amount, but the excessThe initial amount the insured pays out of pocket when making a claim. portion will not receive tax benefits.
Why is it so worthwhile? (Tax benefits)
The tax benefit is twofold and multiplies the power of your money:
Keren Hishtalmut (קרן השתלמות) for self-employed individuals: smart savings and a tax shelter
For self-employed individuals, a Keren Hishtalmut (קרן השתלמות) is often the first vehicle worth considering, due to the combination of an income tax benefit and an exemption from tax on earnings.
As of 2026, there are two important caps:
The two tax benefits for self-employed individuals
| Feature | Income tax benefit (deduction) | Capital gains tax exemption |
|---|---|---|
| Contribution rate | Up to 4.5 % of taxable income may be contributed | A tax exemption on earnings may be received |
| The cap | Up to an income cap of 293,397 NIS per year | For contributions of up to 20,566 NIS per year |
| Meaning | A contribution of up to 13,203 NIS per year can yield a tax benefit worth up to approximately 4,621 NIS per year | Earnings on contributions up to the cap are exempt from capital gains tax |
Contributions to the fund may also reduce taxable income for the purpose of calculating National Insurance payments.
In addition, you can switch between investment tracks or management companies without a Taxable eventAn action in an investment portfolio (such as selling at a profit) that triggers an immediate tax payment to the state.—the tax applies only upon withdrawal of the funds and in accordance with the exemption rules.
Liquidity—when does the money become available to you?
In most cases, the fund becomes available for withdrawal after 6 years. At that point, you have two options:
- Withdrawal
- Receive the money as a tax-exempt lump sum.
- Continue investing
- Leave the money in the fund. Many choose this option to continue benefiting from the capital gains tax exemption on the amount already accumulated—making the fund an excellent long-term investment vehicle.
Investment tracks: How does the money work for you?
The fund is invested in the capital market, and you can choose the level of risk:
Main investment tracks
Each track offers a different combination of risk, volatility, and potential ReturnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested..
Options worth knowing:
- General track: A balanced combination of equities, bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest., and other assets.
- Equity track: High exposure to equities. Suitable for those planning to leave the money invested for many years and willing to absorb volatility.
- Bond/conservative track: Lower risk level, suitable for those approaching the withdrawal date.
- Index-tracking tracks (S&P 500An index composed of 500 of the largest and leading companies traded on U.S. stock exchanges. and similar): Very popular in recent years among savers seeking exposure to leading indices.
Choosing a track is the decision that will determine your money's Return (profit) and volatility (risk) over the years.
How do you choose an investment track?
Considerations to examine
- Rule of thumb: the longer the investment horizon, the more you can consider a track with greater equity exposure.
- Personal considerations: the choice depends on your temperament and ability to cope with market fluctuations (will temporary declines alarm you?).
- The power of the exemption: for many, a Keren Hishtalmut (קרן השתלמות) is a long-term investment vehicle. In these cases, some choose an equity track to maximize the fund's significant advantage—full exemption from capital gains tax on substantial profits.
- Index-tracking investment tracks: these tracks (such as S&P 500) are suitable for those seeking exposure to leading indices and who have less faith in the active managementAn investment approach in which the fund manager attempts to select specific shares or time the market in order to achieve a higher return than the index. of the fund manager.
Compare and choose wisely
Before choosing a Keren Hishtalmut (קרן השתלמות), review the table we created for you, based on Capital Market Authority data, and compare which funds delivered the highest Return with the lowest management fees.
In summary
Many view a Keren Hishtalmut (קרן השתלמות) as the most worthwhile savings vehicle available today. It combines flexibility, LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties., and tax benefits that are hard to find in other vehicles. It is a benefit worth knowing about, monitoring, and managing properly to grow your personal wealth over time.