The Six-Year Rule
The Ministry of Finance describes the קרן השתלמות (Keren Hishtalmut) as a medium-term savings product with no insurance component, withdrawable for any purpose at the end of six years. The six years do not lock the money. They decide whether the withdrawal is taxed.
Section 9(16a) of the Income Tax Ordinance exempts the sums an employee withdraws from a keren hishtalmut account, including linkage differentials and the interest and other profits arising from the qualifying deposit, once six years have passed from the date of the first payment into that account. The same clause carries two shorter routes: three years for an employee who has reached retirement age, and three years for sums the employee uses for their own professional training.
The ordinance fixes the starting date to the account rather than to your job. "The date of the first payment" is defined as the earlier of the end of the month in which the first payment was made and the end of the month for which it was made, and no earlier than the start of the tax year in which it was paid. If you join a company that pays into an account already four years old, two years remain.
What happens if you withdraw early?
Nothing stops the withdrawal. What it costs is the exemption, and Israeli law adds no surcharge on top of that. Three components come out on different terms:
- Your own contributions (2.5%): the employee's share is the one part that never received an income-tax exemption on the way in, so the principal you deposited was already taxed as salary
- Employer contributions (7.5%): section 3(e) treats employer payments within the ceiling as the employee's work income at the moment the employee receives them. Without the section 9(16a) exemption, that is taxable income at your marginal rate in the year you withdraw
- Investment gains: the benefit the Chief Economist's analysis prices is exemption from capital gains tax at 25% of the real profits accrued in the fund. Withdraw before you qualify and that is the 25% you give up
The employer's deposits also escape National Insurance and health-tax contributions on the way in, which is part of why the deposit side of the benefit is the larger half.
Withdrawing after three years for professional training
The three-year training route is not a reduced rate. It sits inside the same exemption clause: sums an employee uses for their own professional training are exempt once three years have passed from the first payment into the account, on the same terms as the six-year withdrawal. The Chief Economist's analysis describes it the same way, as one of the exceptional cases in which the full benefit is granted after three years rather than six, alongside reaching retirement age.
The ordinance does not set out in its own text which studies qualify, and it does not describe an evidentiary standard. That detail sits below the statute, which is a reason to confirm the position with the managing company before treating a course as covered.
Can you make partial withdrawals?
You can, but the ordinance attaches a condition that is easy to miss. Under section 9(16a)(b), the exemption is conditional on the account closing to further payments once the employee withdraws any amount from it. The balance you leave behind is not harmed: where the account has been closed this way, the exemption still applies to a later withdrawal of the remaining sum, so the money left in stays exempt and the six-year clock does not restart. What stops is new money going in.
The clause carves out one case. A withdrawal for professional training in Israel of no more than one third of the sum standing to the account holder at the time of the withdrawal, with no other such withdrawal in the preceding 12 months, is not treated as a withdrawal for this purpose, so the account stays open to further payments.
What happens if you leave it?
Nothing in section 9(16a) requires a withdrawal at the six-year mark. The exemption is a right that has matured, not a deadline. The Chief Economist's analysis notes that a saver can decline to redeem the fund even after retirement age and enjoy a larger capital gains benefit on the additional accrual, while observing that the discounted value of that benefit shrinks in later years.
How do you check your six-year date?
Section 35 of the Supervision of Financial Services (Provident Funds) Law requires the managing company to send members periodic reports carrying the details the Commissioner directs, in the manner and at the times the Commissioner sets. The account's opening date and balance reach you through that channel, and the same figures appear in the provider's member portal. The Hebrew labels to look for are "תאריך פתיחה" (opening date) and "תאריך פדיון" (redemption date).
For an account you have lost track of, the Capital Market, Insurance and Savings Authority runs a free search covering provident funds, pension funds, life policies with a savings component and keren hishtalmut accounts that are no longer active. It runs on an ID number and the date that ID was issued, and it returns an immediate answer.
For an oleh who started work soon after arriving, the six-year date falls inside the first decade in Israel, and it is fixed by the account rather than by the job.
A keren hishtalmut can be withdrawn tax-free once six years have passed from the first payment into that account, under section 9(16a) of the Income Tax Ordinance, and the exemption covers your own contributions, the employer share, linkage differentials and the profits arising from the qualifying deposit. The ordinance fixes the starting date to the account, not to your employment, so an account opened before you joined may already be partway there. The same clause grants the exemption after three years to an employee who has reached retirement age and to sums used for the employee's own professional training. Withdrawing before you qualify carries no separate penalty: it costs the exemption, so the employer share is taxed as work income at your marginal rate and the real profits lose the 25% capital gains exemption. Withdrawing any amount closes the account to further payments, though the balance you leave keeps its exempt status and the clock does not restart.
Six years after the first payment into the account. Section 9(16a) of the Income Tax Ordinance exempts the sums an employee withdraws from a keren hishtalmut account, including linkage differentials and the interest and other profits arising from the qualifying deposit, once that period has passed. The Ministry of Finance describes the product the same way: a medium-term savings vehicle withdrawable for any purpose at the end of six years.
No. The ordinance defines the starting point as the date of the first payment into that specific account, being the earlier of the end of the month in which the first payment was made and the end of the month for which it was made, and no earlier than the start of the tax year in which it was paid. If you join a company that pays into an account already four years old, two years remain.
Israeli law adds no penalty on top of tax. What an early withdrawal costs is the exemption. The employee's own 2.5% share never received an income-tax exemption on the way in, so that principal was already taxed as salary. Employer payments within the ceiling are treated by section 3(e) as the employee's work income at the moment the employee receives them, which without the section 9(16a) exemption is taxable income at your marginal rate in the year of withdrawal. And the benefit the Ministry of Finance's Chief Economist prices, exemption from capital gains tax at 25% of the real profits accrued in the fund, is forfeited.
Yes, and it is a full exemption rather than a reduced rate. Section 9(16a) grants the same exemption after three years, rather than six, for sums the employee uses for their own professional training, and it does the same for an employee who has reached retirement age. The Chief Economist's policy analysis describes these as the exceptional cases in which the benefit is granted after three years. The ordinance does not spell out in its own text which studies qualify, so the position is worth confirming with the managing company before treating a course as covered.
You can take part of it, with one condition. Section 9(16a)(b) makes the exemption conditional on the account closing to further payments once the employee withdraws any amount. The balance you leave is unaffected: the exemption still applies to a later withdrawal of the remaining sum, so it stays exempt and the six-year clock does not restart. What stops is new money going in. The clause carves out one case, a withdrawal for professional training in Israel of no more than one third of the sum standing to the account holder at the time, with no other such withdrawal in the preceding 12 months, which is not treated as a withdrawal for this purpose.
For US olim, a section 401(k) plan and other qualified US retirement plans carry a 10% additional tax on the includible portion of a distribution taken before age 59 and a half, on top of income tax. Israeli law has no equivalent surcharge: an early keren hishtalmut withdrawal loses the section 9(16a) exemption and nothing more. For UK olim, HMRC's normal minimum pension age is 55, rising to 57 on 6 April 2028, and a payment from a registered pension scheme before it is an unauthorised payment unless the member retires on ill-health grounds or holds a protected pension age. A keren hishtalmut has no age gate at all.
Section 35 of the Supervision of Financial Services (Provident Funds) Law requires the managing company to send members periodic reports carrying the details the Commissioner directs, so the opening date and balance reach you through that channel and appear again in the provider's member portal. The Hebrew labels are תאריך פתיחה for the opening date and תאריך פדיון for the redemption date. For an account you have lost track of, the Capital Market, Insurance and Savings Authority runs a free search covering keren hishtalmut accounts that are no longer active, using an ID number and the date that ID was issued.