The Account Your Employer Funds for You
A קרן השתלמות (Keren Hishtalmut) (literally "study fund", a name left over from its original purpose) is an Israeli savings account your employer funds: typically 10% of your gross salary goes in every month, 7.5% from the employer and 2.5% from you1, and after six years the whole balance, gains included, comes out tax-free, up to the annual benefiting-deposit ceiling5. It is a common employment benefit rather than a statutory entitlement, so it is worth asking for in a contract negotiation, and no US or UK account combines an employer contribution with tax-free access that soon.
The money grows in a diversified investment portfolio, and you choose the track. The tax treatment is the whole point: a regular brokerage account would owe 25% capital gains tax on the same growth, and inside the fund it owes nothing.
How do the contributions work?
The rates are not fixed in statute. What the rules require is that the employee deposit be at least one third of the employer deposit; the split most commonly used, and the one used across the civil service, is 7.5% from the employer and 2.5% from the employee1:
- Employer: 7.5% of your gross salary (this is money the employer pays on top of your salary - it does not reduce your take-home pay)
- Employee: 2.5% of your gross salary (deducted from your gross, so it reduces your taxable income slightly)
- Total: 10% of gross monthly, every month, automatically
The contribution ceiling that qualifies for tax exemption is updated annually. For tax year 2026 the qualifying salary for keren hishtalmut deposits is 188,544 NIS per year, which is 15,712 NIS a month2. Contributions on salary above that ceiling are still allowed, but the employer's portion on the excess is treated as taxable income in the year of deposit3.
In practice: if you earn 20,000 NIS/month, your employer puts 1,500 NIS into your Keren Hishtalmut every month, and 500 NIS is deducted from your gross salary. Over a year, that is 24,000 NIS contributed - of which 18,000 NIS came from your employer at no cost to you.
Why Tax-Free Growth Matters More Than It Sounds
Most investment accounts in Israel are subject to a 25% capital gains tax on profits. Inside a Keren Hishtalmut, all capital gains, dividends, and interest accumulate with zero tax while the money is in the fund. When you withdraw after six years, you pay no tax on any of it.
Over a decade of contributions with moderate investment returns, the tax savings alone can amount to tens of thousands of shekels. Combined with the employer match, this combination is among the most favorable savings vehicles available to Israeli salaried employees.
Knowledge Check
What makes Keren Hishtalmut unique compared to other savings vehicles in Israel?
Can the self-employed open a Keren Hishtalmut?
Self-employed individuals (osek patur or osek murshe) can also open a Keren Hishtalmut and make their own contributions. The tax rules are different: the deduction under section 17(5a) of the Income Tax Ordinance is capped by a determining-income ceiling, which for tax year 2026 is 293,397 NIS a year2, and withdrawals after six years remain tax-free5.
If you freelance or are self-employed, speak to an accountant about the optimal contribution level - the deduction rules interact with your other business expenses and Bituach Leumi contributions.
How do you choose a fund manager?
Your employer typically has a default fund manager, but you can always transfer your Keren Hishtalmut to another licensed manager. The transfer regulations treat every payment date in the transferring fund as a payment date in the receiving fund, so moving the account does not restart the six-year clock4. Managers offer a range of investment tracks, from aggressive equity to conservative bond-heavy portfolios.
Management fees vary and have a real impact over time. We cover this in the pension fees article, but the same logic applies: a 0.3% annual fee difference on 300,000 NIS over 10 years costs you roughly 9,000-12,000 NIS in lost growth. Always compare fees before selecting or staying with a manager.
What happens if you withdraw before six years?
Before the six-year mark, the fund is "locked" for tax purposes. You can still withdraw early, but the withholding rate the Tax Authority sets on a keren hishtalmut withdrawal is 47%2, so you lose the main benefit of the account. There is one partial exception: funds can be used for educational purposes (studies) after three years, under specific conditions. We cover the withdrawal rules in detail in the next article.
The Bottom Line
If your employer offers a Keren Hishtalmut and you are not enrolled, enroll immediately. Every month you delay is employer money you are forfeiting. If you are enrolled but have not chosen your investment track, check what you are invested in - the default is often a conservative "general track" that may not match your actual time horizon.
A Keren Hishtalmut is an Israeli savings account your employer helps fund: typically your employer contributes 7.5% of your gross salary each month and you add 2.5%, for a total of 10% of gross deposited automatically into a diversified investment fund (the split is the common one, not a statutory rate; the rule is only that your share is at least a third of the employer's). After six years from the first deposit you can withdraw the entire balance, including employer contributions and all investment gains, completely tax-free, where a regular brokerage account would owe 25% capital gains tax. For tax year 2026 the tax-exempt ceiling is a qualifying salary of 15,712 NIS a month, or 188,544 NIS a year; salary above that ceiling still generates contributions, but the employer's portion on the excess is treated as taxable income. You can transfer the account to another licensed fund manager without restarting the six-year clock, and you should compare management fees before choosing one. If your employer offers a Keren Hishtalmut and you are not enrolled, each month of delay is employer money forfeited.
The rates are not fixed in statute: what the rules require is that the employee deposit be at least one third of the employer deposit, and the split most commonly used, including across the civil service, is 7.5% employer and 2.5% employee. Your employer contributes 7.5% of your gross salary on top of your pay, so it does not reduce your take-home, and you contribute an additional 2.5%, which is deducted from your gross and slightly lowers your taxable income. Together that is 10% of gross deposited every month, automatically. For example, on a 20,000 NIS monthly salary your employer puts in 1,500 NIS and 500 NIS is deducted from you, totaling 2,000 NIS a month, or 24,000 NIS a year, of which 18,000 NIS came from your employer at no cost to you.
After six years from your first deposit you can withdraw the entire balance, including principal, employer contributions, and all investment gains, completely tax-free. This is what makes the account unusual: most investment accounts in Israel pay a 25% capital gains tax on profits, but inside a Keren Hishtalmut all capital gains, dividends, and interest accumulate with zero tax, and you pay no tax on any of it at withdrawal after six years.
Before the six-year mark the fund is locked for tax purposes. You can still withdraw early, but you will pay full income tax on the employer contributions and the gains, which loses the main benefit of the account. There is one partial exception: the funds can be used for educational purposes (studies) after three years, under specific conditions.
The ceiling that qualifies for the tax exemption is updated annually and is set as a qualifying-salary cap. For tax year 2026 that cap is 15,712 NIS per month, or 188,544 NIS per year. On salary up to the cap, the employer's 7.5% contribution is tax-exempt for you; contributions tied to salary above the cap are still allowed and still go into the fund, but the employer's portion on the excess is treated as taxable income.
Yes. Self-employed individuals, whether osek patur or osek murshe, can open a Keren Hishtalmut and make their own contributions. The tax rules differ slightly: the deduction under section 17(5a) of the Income Tax Ordinance is capped by a determining-income ceiling, which for tax year 2026 is 293,397 NIS a year, and withdrawals after six years remain tax-free. Because the deduction rules interact with your other business expenses and Bituach Leumi contributions, it is worth discussing the optimal contribution level with an accountant.
Yes. Your employer typically assigns a default fund manager, but you can transfer your Keren Hishtalmut to any licensed manager without restarting the six-year clock. The transfer regulations treat every payment date in the transferring fund as a payment date in the receiving fund, which is why the clock survives the move, and managers offer a range of investment tracks from aggressive equity to conservative bond-heavy portfolios. Management fees vary and matter over time: a 0.3% annual fee difference on 300,000 NIS over 10 years costs roughly 9,000 to 12,000 NIS in lost growth, so compare fees on both your accumulated balance and new deposits before choosing or staying with a manager.
For US olim, the closest equivalent is a 401(k) with an employer match, but the Keren Hishtalmut is better in two ways: the 7.5% employer match is higher than the typical US 3% to 6%, and withdrawals after six years are completely tax-free, more like a Roth IRA than a traditional 401(k) where withdrawals are taxed as ordinary income. For UK olim, there is no direct equivalent; an ISA offers tax-free growth and withdrawals but has annual caps and no employer match, while a workplace pension provides employer contributions but locks the money until retirement age. The Keren Hishtalmut combines employer funding with access after just six years, a more flexible arrangement than most countries offer.