If you’re self-employed in Israel, you are responsible for managing your income, taxes, benefits and long-term financial planning.
One of the most effective tools available to you is a Keren Hishtalmut. This medium-term savings plan offers meaningful tax advantages and can provide flexibility in accessing your funds in the future.
Here’s how it works, what benefits it provides and how to use it strategically.
What is a Keren Hishtalmut?
A Keren Hishtalmut is a savings fund originally designed to help people finance professional development and training. It’s a flexible medium-term savings account that you can open as a self-employed worker if you earn income from a business or profession. (Employees can also enjoy the benefits of a Keren Hishtalmut, opened by their employers.)
Unlike many other savings plans, this one offers you two major benefits at the same time. It helps you reduce your taxes now, and it can let you withdraw profits later without paying capital gains tax.
Income tax benefit
When you deposit money into a Keren Hishtalmut, part of what you contribute can be recognized as a deductible expense for income tax purposes. In simple terms, that means you lower your taxable income.
In 2026, the deposit you can generally count as a deductible expense is up to 4.5% of your taxable income (your total income minus recognized business expenses). However, there is an annual cap of 13,203 NIS per year (as of 2026), above which you won’t receive the income tax benefit. You can deposit more than this amount if you choose, but the portion above the cap will not be recognized as a deductible expense for income tax purposes.
Tax-free profits
A major advantage of the Keren Hishtalmut is that your investment gains can be exempt from capital gains tax. That means if your money grows inside the fund, you may be able to withdraw the profit without paying the typical 25% capital gains tax.
To enjoy the tax exemption on profits, you generally need both of these conditions:
- You must deposit no more than 20,566 NIS per year (as of 2026). (If you deposit more than that, the profits on the excess amount can be taxed.)
- You must wait until the fund is “mature” (after 3 years, if you’re using the money specifically for training or studies, and after 6 years with no restrictions)
After six years of seniority in your Keren Hishtalmut, you can use the funds for any purpose, such as:
- To cover a slow business season
- For upgrading your laptop, gear or equipment
- To pay for a course, coaching or certification
- To renovate your home
- For a family expense
- To invest elsewhere
- For something fun
Even though you’re allowed to withdraw after 6 years, you aren’t required to. If you leave the money in the fund, it can keep compounding and your gains can remain tax-advantaged, which makes it a strong long-term savings vehicle.
Flexible deposits
Another advantage of the Keren Hishtalmut is that deposits are flexible and don’t have to be monthly. You can instead choose to deposit quarterly, once a year in one lump sum or whenever your cash flow allows. So if your income is seasonal, or you get paid in bursts, you can still use this plan without stressing over the need to deposit at a specific time.
Keep in mind that if you want your deposit to count for the current tax year, the money needs to arrive in your fund before the end of December.
Reduced Bituach Leumi and health payments
When your deposit is recognized as a deductible expense, it can also reduce the income used to calculate your payments to Bituach Leumi (National Insurance) and your health insurance contributions. In some cases, this savings can be significant, potentially up to 17.83% of the amount you deposit (within the relevant limit).
Even though this savings plan can reduce your taxable income for tax and National Insurance purposes, it doesn’t reduce your income for eligibility for the “Work Grant” (also known as negative income tax). So if you weren’t eligible before depositing, this deposit won’t make you eligible.
When you’re also a salaried employee
If you’re self-employed and also work as a salaried employee in the same tax year, you can still benefit from a Keren Hishtalmut, but the amount you can deduct as self-employed depends on your salary and how much was already considered for the employee ceiling. In other words, you can still benefit, but your personal cap might be lower. If you’re in this situation, it’s worth checking the numbers carefully so you don’t assume you’re getting a deduction that you aren’t.
When your business isn’t profitable
If your business is still active, you can continue depositing even during periods when you have no income or even if your business is running at a loss. In those years, you may not be able to enjoy the income tax deduction, but you may still benefit from tax-free profits later (up to the annual profit-exemption ceiling). If your business closes, though, you generally can’t continue depositing into the fund.
How to open a Keren Hishtalmut
To open a fund, you choose a company that manages Keren Hishtalmut accounts and provide documentation showing you’re self-employed.
You’ll usually need to show proof such as an Osek Murshe certificate or evidence of self-employed income from a business or profession. Then you deposit the amounts you choose based on the fund’s instructions, usually via bank transfer or check.
Transferring funds
If you already have a Keren Hishtalmut and you want to move it to another company, you can usually transfer it while keeping your original seniority. That’s important because your “clock” matters for tax-free withdrawals.
Common reasons to transfer your Keren Hishtalmut to another fund include:
- Lower management fees – Even small differences can add up over time and reduce your net returns.
- A different investment track – Some funds offer a wider range of options, such as more conservative tracks, higher-risk tracks, halachic or Sharia-compliant tracks and index-based tracks.
- Performance – While past returns do not guarantee future results, some funds have a stronger long-term track record in the type of investment strategy you want.
- Service quality – If your current fund has poor customer support, slow processing or an inconvenient online system, transferring can make your savings easier to manage.
- Consolidating savings in one place – If you have older accounts from previous jobs or different providers, consolidating makes everything simpler to track.
Checking if you have a Keren Hishtalmut
If you’re not sure whether you have a Keren Hishtalmut from the past, or you don’t know where it’s being managed, you can look it up through Har HaKesef, the Ministry of Finance’s savings locator tool. This secure website requires that you provide various forms of identification and will provide you with information about your pension plans, life insurance and dormant bank accounts in addition to your Keren Hishtalmut.
One of the best moves you can make
As a self-employed person, you don’t get automatic employer perks. You have to build your own safety net. A Keren Hishtalmut lets you do that in a way that’s flexible, tax-smart and practical. You can reduce your taxable income today, potentially lower Bituach Leumi payments and grow savings that can be withdrawn tax-free in the future.
This article is based on the Kol Zchut website in Hebrew and Blue & White Finance’s Ultimate Guide to Keren Hishtalmut.
