general background
The purpose of study funds is to finance studies or any other purpose by means of short and medium term savings. The fund budget is at the employer’s expense and at the employee’s expense for the benefit of the worker, and is a benefit granted by the employer to the employee from a number of aspects:
The funds are usually tax exempt
The accumulated profit on savings are free of tax up to 15,712 NIS correct for 2006.
In respect of deposits in excess of the ceiling, the real gain is liable for tax, commencing in 2003.
Plan budget
7.5% at the employer’s expense (lower percentages can be deposited)
2.5% at the employee’s expense.
Total of 10% for a study fund.
There is a ceiling for deposits which vary from time to time
As at January 2006 the ceiling is 15,712 NIS.
Two stages of taxation on deductions for a salary in excess of the ceiling:
At the deposit stage
In the case of an employee in respect of whom monies are deposited in excess of the permitted ceiling, the excess deposit by the employer will be deemed additional income in the hands of the employee on which he will be liable for tax in accordance with the tax bands.
At the withdrawal stage
The cumulative real gain will be liable for tax at 15% from January 2003 through December 2005 and 20% commencing in January 2006.
Bank study funds as compared with private study funds
The main characteristic of the study funds offered by the big banks is lack of ability to react quickly to changing market conditions.
The difference between the amounts of money in the bank study funds as compared with the private study funds complicates the ability of the bank funds to move between the various types of investment.
It can be sad that the bank study funds suffer a "major lag" in this case and the last seven years have seen the private study funds showing higher returns that the bank funds.
Withdrawal of cash from study funds
The cash accumulated in a study fund can be withdrawn at the end of 6 years seniority without need for proof of the purpose of the withdrawal.
Where the member chooses not to withdraw the accumulated cash at the end of the 6 years, can continue depositing money which will be liquid and available for withdrawal at any time, free of tax.
Withdrawal of cash from a study fund is possible also after 3 years for the purpose of study only, on condition that the fund management receives the appropriate documentation.
On retirement, the cash can be with drawn, for any purpose without being liable for tax.
Withdrawals from study funds are liable for tax in accordance with the following rules:
Withdrawal of cash before the end of three years not for the purpose of study will be liable for tax on all the cash in the fund in the name of the employer and the employee at a rate of 49% (fund and profits)
Withdrawal of cash in years 3-6 not for the purpose of study is liable for tax at 49% on the employer’s portion and on the cumulative gains (employee’s portion is not liable for tax).
Transfer between funds
The transfer between one fund and another is easy and does not involve any loss of seniority rights in respect of accumulated cash monies or fines of any kind.
The seniority is recorded according to the seniority in the first fund unless withdrawals of any kind have taken place.
Transfers between funds can be made on a monthly basis (although this is not advisable).
The transfer between funds does not entail payment of any kind.
Cessation of payments into a study fund
A cessation of payments into a study fund for any reason does not have any negative implications, and the monies accumulated continue accumulate seniority and returns, and may be withdrawn in accordance with the rules.
Loans
At the end of three years membership of a study, a loan can be obtained of between 50% and 90% of the money value of the fund (depending on the fund). The seniority is counted from the date of the first deposit, also with transfer from fund to fund.
Deposit of monies
Each person joining a study fund opens an account into which monies are deposited. The funds are not able to withdraw the monies or make transfers to other accounts.
The fund is the managing entity and benefits from management fees.
Management fees
The maximum management fees permitted by the Ministry of Finance are up to 2% per annum of the accumulated savings in the fund.
Additional information on returns and comparisons of levels of risk or all the funds and provident funds can be found in the Ministry of Finance "GemelNet" system, at www.mof.gov.il