The Six-Year Rule
The defining feature of the קרן השתלמות (Keren Hishtalmut) is also its main constraint: the money is effectively locked for six years from the date the fund was opened. After six years, you can withdraw the full balance - contributions, employer match, and all investment gains - completely tax-free.
The six years are measured from the date the first contribution was made to the specific fund, not from your start date at your employer. If you join a company and they contribute to an existing fund that was already four years old, you need only two more years before tax-free withdrawal - though many employers open a fresh fund for each new employee.
What happens if you withdraw early?
You can withdraw your money before the six-year mark, but the tax-free advantage disappears. Early withdrawal is treated as follows:
- Your own contributions (2.5%): Returned with no tax - they were from your after-tax income (or were already deducted from gross, in which case they are taxed on withdrawal)
- Employer contributions (7.5%): Taxed as income at your marginal tax rate - treated as if you had received a salary payment that year
- Investment gains: Subject to capital gains tax at 25%
In practice, an early withdrawal can cost you 30-40% of the employer-contributed portion in taxes. The fund manager will withhold the tax and remit it on your behalf. This is why financial advisors strongly discourage early withdrawal except in genuine emergencies.
Can you withdraw early for educational purposes?
There is one partial exception to the six-year rule. After three years from the fund opening, you may withdraw the money for "educational purposes" and still receive partial tax treatment. In practice, the rules for this exception are quite broad - the Israel Tax Authority does not require proof of actual study expenses.
However, the tax benefit under the three-year educational withdrawal is not the same as the full six-year exemption. The withdrawal is still taxed, albeit at reduced rates compared to a standard early withdrawal. The exact rules depend on when the fund was opened and the type of fund (employee vs. self-employed). Consult your fund manager or an accountant before exercising this option.
In practical terms, most people should simply wait the full six years. The three-year option exists but the additional tax cost makes it a poor choice unless you have an urgent need.
Can you make partial withdrawals?
You do not have to withdraw the entire balance at the six-year mark. You can withdraw any portion of the accumulated balance, leaving the rest invested in the fund. The remaining balance continues to grow tax-free, and future withdrawals remain tax-free as well - the six-year clock does not restart.
This flexibility makes the Keren Hishtalmut useful as a medium-term savings vehicle for large purchases - a down payment on an apartment, a car, home renovation - while potentially leaving the rest invested for longer-term growth.
What should you do after you withdraw?
Many olim who reach the six-year mark face a dilemma: take the money now, or leave it invested? The answer depends on your current financial situation and goals.
If you have no immediate use for the funds, there is a strong case for leaving them in the Keren Hishtalmut. The fund continues to grow tax-free, and contributions continue to accumulate. There is no obligation to withdraw just because the six years are up.
If you do withdraw and want to reinvest the proceeds, consider a קופת גמל להשקעה (Kupat Gemel L'Hashkaa) (investment provident fund) for the portion you are not spending. It offers different advantages but similarly favorable tax treatment, and there is no minimum holding period.
How do you check your six-year date?
Log in to your fund manager's online portal - all major providers (Meitav, IBI, Menorah, Altshuler Shaham) have Hebrew and sometimes English interfaces. Look for "תאריך פדיון" (redemption date) or "תאריך פתיחה" (opening date). If in doubt, call the fund manager's service line - they are obligated to provide this information.
New olim who started work shortly after arriving should mark the six-year anniversary in their calendar. It is one of the most financially significant dates in your first decade in Israel.
A Keren Hishtalmut can be withdrawn completely tax-free six years after the first contribution to the fund, including your own contributions, the employer match, and all investment gains. The six-year clock starts from the date the first deposit was made to that specific fund, not from your employer start date, so a fund opened before you joined may already be partway there. Withdrawing before six years removes the tax exemption: your own contributions come back without tax, the employer portion is taxed as income at your marginal rate, and investment gains are taxed at 25% capital gains, which in practice costs 30-40% of the employer-contributed portion. A partial exception lets you withdraw after three years for educational purposes at reduced tax rates, but the benefit is smaller than waiting the full six years. You are not required to withdraw at the six-year mark, you can take partial withdrawals while the rest keeps growing tax-free, and the six-year clock does not restart.
Six years after the first contribution to the fund. After that point you can withdraw the full balance, including your own contributions, the employer match, and all investment gains, with no tax at all. The six years are measured from the date the first deposit was made to the specific fund, not from your start date at your employer.
No. The six years are measured from the date the first contribution was made to the specific fund, not from your employer start date. If you join a company and they contribute to an existing fund that was already four years old, you would need only two more years before tax-free withdrawal. However, many employers open a fresh fund for each new employee, so it is worth checking whether your fund predates you joining.
Withdrawing early removes the tax-free advantage. Your own contributions (2.5%) come back with no tax because they were from after-tax income, though if they were deducted from gross they are taxed on withdrawal. Employer contributions (7.5%) are taxed as income at your marginal tax rate, as if you had received a salary payment that year. Investment gains are subject to 25% capital gains tax. In practice, an early withdrawal can cost 30-40% of the employer-contributed portion in taxes, and the fund manager withholds the tax and remits it on your behalf.
There is one partial exception. After three years from the fund opening, you may withdraw for educational purposes and still receive partial tax treatment, and the rules are quite broad because the Israel Tax Authority does not require proof of actual study expenses. The withdrawal is still taxed, though at reduced rates compared to a standard early withdrawal, and the exact rules depend on when the fund was opened and the type of fund (employee vs. self-employed). It is worth consulting your fund manager or an accountant before exercising this option, and for most people the additional tax cost makes the three-year route a poor choice unless there is an urgent need.
You do not have to withdraw the entire balance. You can withdraw any portion of the accumulated balance and leave the rest invested. The remaining balance continues to grow tax-free, future withdrawals stay tax-free, and the six-year clock does not restart. This flexibility makes the fund useful as a medium-term savings vehicle for large purchases such as a down payment on an apartment, a car, or home renovation, while leaving the rest invested for longer-term growth.
For US olim, the structure resembles a Roth IRA, where early withdrawals of earnings trigger taxes, but the Keren Hishtalmut has no extra penalty beyond normal income tax treatment, so its early-withdrawal rules are gentler than a 401(k)'s 10% penalty on top of income tax. For UK olim, unlike a workplace pension where early access before age 55-57 is nearly impossible, the Keren Hishtalmut permits early withdrawal with only a tax cost, which can be a strength in an emergency. In most other countries, tax-advantaged accounts lock money until a set age or impose significant penalties, whereas the Keren Hishtalmut is relatively forgiving, with no additional government penalty beyond losing the tax exemption.
Log in to your fund manager's online portal. All major providers (Meitav, IBI, Menorah, Altshuler Shaham) have Hebrew and sometimes English interfaces. Look for תאריך פדיון (redemption date) or תאריך פתיחה (opening date). If in doubt, call the fund manager's service line, as they are obligated to provide this information. New olim who started work shortly after arriving should mark the six-year anniversary in their calendar, since it is one of the most financially significant dates in their first decade in Israel.
