Are you self-employed? Discover hundreds of thousands of shekels worth of benefits when you use your pension and education funds!
To fully understand how you can gain from tax benefits available to the self-employed, consider this example: A person is 37 years old, self-employed, and earns 25,000 shekels a month before taxes. The last 4000 shekels of this is in a higher tax bracket, and is taxed at 35%, plus an additional 18% for Bituach Leumi and the health tax. So just over 50% of this 4000 shekels are taken in taxes. To simplify, only 2000 shekels of that 4000 remain. Our self-employed person wishes to save this money for retirement. They have two options:
Option A:
The regular way: Put the 2000 shekels in savings every month. This will earn 7% annual interest at the most. After 30 years, the savings will total around 1.5 million shekels, and will be subject to a 25% capital gains tax.
Option B:
The smart way: Put the 2000 shekels into a pension or education fund (keren hishtalmut), and get an additional tax refund of 2000 shekels, for a total of 4000 shekels deposited into the fund every month. 3000 shekels of that will go to a provident fund, and the remaining 1000 will go to an education fund. This will earn 6% annual interest, but will not be subject to capital gains tax. After 30 years, the savings will total around 3.9 million shekels. That’s 2.4 million shekels more, just by utilizing tax benefits.
How does our self-employed person get the money at retirement?
Assuming they didn’t withdraw any money in the interim, here’s how it works: 1.78 million shekels will be available as a lump sum at retirement, tax-free. (975 thousand from the education fund, and 800 thousand capital-exempt allowance). The remaining 2.12 million shekels will be paid out at 10 thousand shekels per month.
So, do you want to get the most of your tax benefits this year?
Important note:
Those who make less than the person in the example above can also gain from these tax benefits. The important thing is to be prepared for your future and ensure that you have income after retirement. This tax benefit is granted once per tax year, for deposits that were made during that year.
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Note: This article is for informational purposes only. It is not exhaustive, and does not constitute professional advice. The author is not responsible for direct or indirect damage caused by use of the information in this article. Always consult a professional when dealing with savings funds.
