Pension savings are very important, these funds might be used to support us when retiring and that is why it is important to understand the ability to save in tax payments during the deposit period to the pension account and during withdraws from the pension account. More over, by correct and useful understanding and use of the tax laws, thousands of NIS can be saved in taxes we would pay when retiring. In this article we will review the main tax benefits when retiring.
Severance packages – the income tax directive grants a tax exempt to the individual receiving a severance package when retiring from his work for the amount of his last salary (up to a tax ceiling of 12,120 NIS as of 2013) times the number of years of employment. The amount exceeding the ceiling of the tax exempt as fore mentioned is taxable according to the the individual fixed tax rate. The taxable part of the severance package can be spread out, that every 4 years of work grants an additional year to the spread, as long as it does not exceed 6 years. The spreadable part of the taxable payment can be attributed to the years previous to the retirement and to the years following the retirement date, depending on the retiring person.
We recommend you turn to a tax expert in order to examine your tax exempt when receiving your severance package.
Provident funds deposits – The Israeli taxation regulations encourages deposits to pension funds that pay off when an individual reaches the retirement age, Seeing depositing funds to pension funds reduces the country’s burden to support an individual when they retire. The Israeli taxation regulations states that a individual depositing funds to pension funds as mentioned will be entitle to certain tax benefits when calculating his taxable income in reference to his annual deposits and taxable income.
For the optimal deposit calculation for recommended deposit sums to Provident funds, according to each entity, please contact us.
Education fund deposits- Education fund deposits is a six year savings plan, but the funds can be earlier for professional education, medical circumstances etc. The advantage in education funds is that they are tax free for the employee (in accordance with the maximum deposit ceiling), so withdrawing the funds in accordance with its terms gives the employee a significant benefit being tax free.
For the optimal deposit calculation for recommended deposit sums to Education fund, according to each entity, please contact us.
Tax exemption on pension- The law includes instructions for pension deposits, the pension is in fact payments from the pension fund for deposits performed, granting the individual depositing tax benefits. Part of the pension might be tax free according to the year of retirement, capitalizations of pensions, meaning the funds granted can be converted to a capital grand (a one off grant).
An Israeli resident or a veteran returning resident receive their funds from out of Israel for their work abroad. The tax rate for this income will only be as high as the tax paid for the same income in the origin country in the individual would still be living there.
To maximize your tax benefits, we recommend you turn to a tax expert to examine your tax savings when reaching retirement.