Reduced tax rate for early training fund withdrawals until year-end

Tax Authority offers reduced tax rate of up to 15% for early withdrawals from training funds until year-end, aiming to assist households during challenging times.

  (photo credit: SHUTTERSTOCK)
(photo credit: SHUTTERSTOCK)

The Tax Authority offers the public to withdraw money saved in the training funds, even if six years have not passed since the beginning of the savings. According to a memorandum of law published by the Authority for Public Comments, it will be suggested to the self-employed and employees to withdraw money from the training funds at a reduced tax rate of a maximum of 15%, which decreases as you get closer to the date when the money is exempt from tax, that is, six years before the start of deposits.

According to the announcement of the tax authority, the move was made against the background of the war and as part of the government's efforts to help households in the challenging period, but at the same time it could increase the collection of taxes. According to the memorandum, which still needs to be approved by the Knesset, the benefit will apply until the end of 2024.

Currently, amounts withdrawn by an employee or self-employed person from his account in a training fund, including linkage differences as well as interest and other profits, are exempt from tax only if 6 years have passed since the date of the first payment and in the case of an employee or An individual who has reached retirement age - only if 3 years have passed since the date of the first payment. Premature withdrawal of the aforementioned, requires payment of tax at the marginal tax rate on the withdrawn funds, which can reach tens of percent.

According to the legal memorandum that was distributed, it is proposed to apply, instead of the marginal tax, a tax rate of 15% (and in the case of an individual who has reached retirement age 7.5%), at most, on amounts withdrawn. The closer the withdrawal date is to the period established by law for a tax-free withdrawal, the lower the tax rate that will apply. Thus, for example, an individual who has not reached retirement age and requests to withdraw funds 3 years after the date of the first payment, will pay a tax of 7.5% on the withdrawn funds.

A training fund is considered one of the preferred savings products because of the tax exemption after six years of savings. Experts in the family economy tend to recommend not withdrawing training funds in favor of consumption except in a situation of having no choice.