I love talking about keren hishtalmut funds (Israeli savings and investment funds with tax benefits). When friends tell me they have money to spare, I ask whether they have one. Friends start a new job, and I ask about a keren hishtalmut. Not long after Idan and I started dating, he told me he had some money he did not know what to do with. I said the magic words, “keren hishtalmut,” and a week later he had a fund with money in it.
I think it’s a really good way to invest. In your case, before doing anything, it’s worth consulting a professional who can advise you based on your own situation.
(A note for US citizens: there are US tax issues to consider that I, as someone who is not a US citizen, am not familiar with.)
What is a keren hishtalmut?
A keren hishtalmut is an investment vehicle, which is a fancy way of saying “a way to invest money” or “somewhere to invest your money,” for the medium term. Usually, the money becomes available for withdrawal after six years of seniority. That seniority depends on the first contribution and the fund’s rules, not just on opening an empty account. “Being able to,” not “having to,” because you can also leave your money there longer to grow and earn more money.
Need the money in less than six years? A keren hishtalmut may not be your best way to save and invest.
There’s an exception called hachalat vetek (applying one fund’s seniority to another). In some cases, you can use the seniority of a fund that’s already available for withdrawal to withdraw from a newer fund too. This isn’t automatic: check the conditions and the order of withdrawals with the company managing your fund. There’s an explanation on Menora Mivtachim’s website.
There are two reasons I love keren hishtalmut funds so much:
Because it’s a really simple investment vehicle
There are two parts to that sentence:
It’s an investment vehicle
Money you invest is not sitting in your current account getting bored or, worse, sitting in your current account getting spent. When you put money into an investment vehicle, it leaves your current account and goes to work, just like you and me. Its job as an investment is to make you more money.
With a keren hishtalmut, you can choose from a fixed but broad range of investment options. More bonds, fewer bonds, equities selected by the fund manager, index tracking, and more. The range offers conservative savings options (bonds) and more aggressive ones (shares). You control the fund’s level of risk and potential return (more risk = greater potential gains and losses).
The rule of thumb is that the younger we are, and the more time our money has to work, the more risk we can afford to take because it’s easier to recover. But that doesn’t apply to everyone in every situation, and it’s worth consulting professionals.
It’s really simple
Opening a keren hishtalmut is simpler than opening an investment account:
- As far as I know, and in my experience, there’s no minimum contribution. So you don’t need to wait a few months and save up enough to open one.
- You can open it yourself or through an agent.
- You don’t have to deposit money into a brokerage account, exchange currencies or buy investments according to their allocation in your portfolio. For employees, contributions go through payroll. For the self-employed, they go through a standing order or individual deposits (and don’t forget to send proof of payment so they know you have paid into your fund!).
- Any of the investment houses in Israel will be happy to offer you a keren hishtalmut. Once you have filled in a few of its forms (on your own or with a pension adviser) and sent over a few documents (basically, your Israeli ID and business registration for the self-employed, or Form 101, the Israeli employee tax form, for employees), you can start contributing.
A lady sitting there looking pleased because she has a keren hishtalmut.
Because it’s exempt from capital gains tax
For the taxable gains discussed here, Israeli capital gains tax is generally 25% of the real gain, after inflation. You put in ₪100 and earned a taxable real gain of ₪10? The state will take ₪2.50 (25%) of that return.
The gains on qualifying contributions to a keren hishtalmut are exempt from this Israeli tax when the withdrawal conditions are met. I prefer the money I have earned to stay in my pocket. My second choice is to decide whom to give it to. I didn’t choose to give it to the state, and I will take any legal option available to keep as much of my profit as possible.
How do you open a keren hishtalmut?
A keren hishtalmut is a benefit provided by an employer.
For the self-employed, that’s not a problem. You’re your own employer, and you can open a keren hishtalmut as soon as you register as an osek patur or osek murshe (the two Israeli business registration categories, exempt from or registered for VAT). Employees need to ask their employer for the benefit, or work somewhere that provides it without being asked.
Two numbers the self-employed should know
If you’re self-employed, there are two keren hishtalmut numbers worth knowing:
- ₪20,566 a year (as of 2026): the highest contribution amount that qualifies for the capital gains tax exemption. The real gains on contributions above that limit are generally subject to 25% Israeli capital gains tax.
- 4.5% of your annual taxable income (income minus deductible expenses): this can count as a tax-deductible expense*, up to an annual deduction of ₪13,203 in 2026, based on eligible income of up to ₪293,397.
That works out at about ₪1,713.83 a month (if you can afford it), so that you reach the ₪20,566 annual limit for contributions whose gains qualify for the exemption, with a small adjustment to the last payment.
If you’re self-employed and your accountant told you to contribute less, that may be because they’re working out your income-tax deduction. For example, a hypothetical recommendation of ₪250 a month could be based on 4.5% of your expected annual taxable income, divided by 12. That’s the deduction for income tax, which is separate from the exemption on investment gains.
That doesn’t mean you cannot contribute more. You can contribute as much as you like to a keren hishtalmut, but only up to 4.5% of eligible income, within the annual deduction limit, will count as a deductible expense, and only up to ₪20,566 will qualify for the capital gains tax exemption.
* Tax-deductible expense: you’re both growing your wealth and paying less tax on it!!!!!
Notes on keren hishtalmut funds for employees
Dear employees, your capital gains tax exemption has a limit too. The amount that qualifies for the exemption for employees is ₪18,854.40 a year as of 2026, based on qualifying monthly pay of up to ₪15,712 and the usual contributions of up to 7.5% from the employer and up to 2.5% from the employee over a full year. If your salary or contributions are lower, the amount is lower too.
Contributions are usually split between you and your employer, with the employer paying 7.5% and the employee paying 2.5% of gross salary, but this is not mandatory. Things can be a little different for civil servants, so it’s worth checking directly with the employer providing the benefit. Kol Zchut (an Israeli rights information website) lays it out nicely, as far as anyone can make sense of this mess.
Your employer doesn’t offer a keren hishtalmut? I suggested to my employer that I cover the fund’s cost out of my salary. It does mean changing the gross salary on your payslip, but as long as your boss’s total employment cost* doesn’t change, they might not mind. I tried it, and it worked. You can also try asking for a keren hishtalmut instead of a pay rise.
* Total employment cost: how much it costs your employer to pay you. Taxes and contributions come out of your gross salary, leaving you with your take-home pay. Your employer has additional expenses on top of your gross salary: National Insurance contributions, paid annual leave, an annual dmei havra’a payment (an Israeli recuperation allowance), pension contributions, car expenses, a phone, and more. Your gross salary together with these extra expenses makes up your employer’s total employment cost.
Both employed and self-employed?
Lucky bastards. You can open a keren hishtalmut for yourself as a self-employed person and ask your employer to open one for you as an employee. And yes, you can reach the limit both as a self-employed person and as an employee.
To sum it up
| Main advantage | One of the simpler financial products; exemption from capital gains tax up to a certain limit; a tax-deductible expense |
| Main disadvantage | A low exemption limit, annual qualifying contributions of ₪20,566 for the self-employed or ₪18,854.40 for employees in 2026, subject to the conditions above |
| Investment timeframe | At least 6 years |
| Conservative/aggressive | You choose the portfolio mix and allocations. |
| Who opens it | The employer. Self-employed people can open one for themselves because they are the employer. |
What is a keren hishtalmut, and who can open one?
A keren hishtalmut is a simple investment vehicle that’s exempt from capital gains tax. For employees, the employer can open the fund for you. Self-employed people can open one for themselves.
Should I open a keren hishtalmut?
Of course: it’s convenient, simple and exempt from capital gains tax, and for the self-employed it even counts as a tax-deductible expense!
