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Minus Minus: How to improve our financial situation this year and what mistakes should be avoided

The corona crisis has affected many Israelis, but even during the crisis it is important to use the various savings instruments in a smart way to our advantage.

Here are some simple rules that will help you get the most out of our savings in the study fund, the pension fund and the investment provident fund

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• Education fund

Desi Nir, in collaboration with Altshuler Shaham

Tuesday, 24 November 2020, 14:16

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Simple rules for getting the most out of your study fund savings (Photo: Shutterstock)

The year 2020 was supposed to be another normal year, relatively speaking.

Looking at economists ’forecasts from the end of 2019, many have estimated that the moderate growth trend that characterized 2019 will continue well into the following year.

But the corona crisis that erupted earlier this year devoured the cards.

With close to a million unemployed and workers in the IDF, many Israelis now have to think twice before any significant purchase. Despite the high volatility that characterized the beginning of the crisis, the capital market continues to be a significant investment alternative that can help us get through the difficult period. the course and retirement plans.

How can we take advantage of the various savings instruments in our favor, with comparison of education funds and pension funds, for example, and how do we avoid cardinal mistakes would cost us money? Here are five tips to cut and save.

Even when the situation is difficult, think carefully about what savings you should break

Throughout life, most of us accumulate savings in all kinds of avenues and savings instruments: savings plans in the bank, study fund, pension fund, provident fund, savings policy, investment portfolio and maybe even some money lying in the current account. Some of these savings are liquid for immediate withdrawal while others are required Pay an early withdrawal fee or even a fine.Finance sounds a bit draconian, but the state encourages us to save in a study fund, pension fund or provident fund savings through significant tax benefits - provided we meet the savings condition: a study fund is usually a savings for 6 years or more (note 1 at the bottom of the article), while pension savings such as a pension fund or a provident fund for savings are savings intended for retirement age.If we choose to withdraw the money earlier and not according to the existing withdrawal conditions in the law, we will have to repay the tax benefit we received through the same fine From the savings at

least.The corona crisis created many economic damage and hurt their income.In such a situation, many Israelis had to reduce expenses and take advantage of savings.But just before withdrawing savings, it is important to make an order and understand what the attraction of each of them means. The H.

Additionally, it is advisable to consider withdrawing liquid funds first if any, such as a mutual fund, investment provident fund or savings bank plan that is already attractive.

As part of the assistance program approved by the government to help us get through this period, the possibility of a tax-exempt withdrawal of partial amounts from a study fund was also approved (2).

This attraction is possible for someone whose income or the income of the spouse has been harmed as a result of the crisis.

You can withdraw up to NIS 7,500 in a calendar month and a total of up to 7 withdrawals for a total amount of up to NIS 52,500 (3).

The last date for utilizing this benefit is 9.2.2021.

Despite this, not many choose to withdraw the money from the study funds because they provide particularly attractive tax benefits.

These benefits become more significant as we save in the study fund for a longer period and they may even amount to thousands of shekels.

Think smart and do not withdraw the compensation money from the pension savings

Withdrawing the compensation money from the pension fund will reduce the amount of the monthly pension you will receive after you reach retirement age.

When an employee-employer relationship is severed and the member is entitled to funds in accordance with the provisions of the law (4) an employee can withdraw the compensation money from his pension fund tax-free up to an amount of one monthly salary (up to a ceiling of NIS 12,420 as of 2020) for each year of seniority.

But it is important to understand that compensation money makes up more than a third of our retirement savings.

Withdrawal of severance pay today could result in a significant reduction in the accumulated balance in the pension fund accumulated until retirement, a decrease that may reduce the amount of monthly pension the employee will receive after reaching retirement age by more than a third.

In addition, from the age of retirement we are entitled to an income tax exemption on the monthly pension until the ceiling set in the ordinance, provided that we have not withdrawn the tax-exempt compensation money over the years.

Any withdrawal of tax-exempt compensation money utilizes some of the same tax-exempt that is supposed to be used by us after retirement.

That is, withdrawing the compensation money harms our pension in two ways: it also reduces the amount of the annuity we will have at retirement and also reduces the tax exemption so that we may pay more income tax on the monthly annuity.

In order to allow yourself to retire knowing that you have a sufficient pension, it is important to maintain regular and stable savings throughout the years of work, while avoiding as much as possible the withdrawal of compensation money.

If you have a study fund, you can see it as a long-term savings instrument, use the money you saved only when you retired and thus increase your pension income.

In order to allow yourself to retire knowing that you have a sufficient pension, it is important to ensure regular and stable savings throughout the years of work (Photo: Shutterstock)

Compare the study funds and the various savings products and choose the most lucrative savings

Have you finished mapping out your savings and investment plans?

It is recommended to make a comparison between investment houses and make sure that you have chosen the most profitable savings for you.

The study funds as well as your pension savings are invested in the capital market to enable us to achieve as much return as possible.

The higher the quality of the investments in the study fund or the pension fund, the more consistent you will be able to achieve over the years.

It is advisable to compare your investment track in the study fund or the pension fund to similar investment tracks and check if over the years there have been significant gaps in returns.

You can use the Ministry of Finance 'Gamel Net' website, which allows you to compare your savings over a period of one, three years or five years.

In savings in the pension fund, management fees accumulate over the long years of savings to significant amounts.

Choosing the chosen pension fund, for example, will allow you to enjoy reduced management fees for ten years so that more money accumulates in savings.

The compound interest effect allows you to leverage every shekel in savings significantly over the years, so it is important to start saving as early as possible.

When comparing pension funds it is advisable to also compare the quality of service as it is rated by the Ministry of Finance.

The quality of service index of pension funds examines how satisfied customers are with the service of the pension fund, what the rate of complaints is and how long the telephone response to customers lasts.

Some pension funds offer customers a solution in a variety of channels that combine human response with digital channels that allow you to get a quick response.

Take advantage of the many tax benefits on study funds and pension savings for the self-employed

Beyond the tax benefits provided when withdrawing a study fund or a pension fund after retirement, self-employed savers may be entitled to additional unique benefits when depositing into these savings products.

A deposit to a study fund is considered for the self-employed as a recognized expense that allows them to reduce their taxable income.

A deposit to a study fund can be recognized at a rate of up to 4.5% of the annual income, up to a fixed income ceiling of NIS 265,000 as of 2020. A

deposit for pension savings, such as a pension fund or provident fund for savings, at a rate of up to 16.5% of taxable income up to a ceiling of 211,200 NIS (5) may provide significant tax benefits.

First, you can recognize a deposit of up to 11% of your taxable income as an expense that reduces your tax liability.

You can also enjoy a tax credit at a rate of 35% for an amount equal to up to 5.5% of the annual income, or up to 5% if you purchased disability insurance separately (6).

Every year and especially in such a challenging year, it is recommended to check with the accountant or tax advisor the utilization of the tax benefits to the maximum.

This way you can pay less tax and also take care of the income that will be used by you after retirement.

It is important to note that the amount of the benefit may vary from person to person, and depends on a number of parameters, so it is important to contact a licensee or tax advisor / accountant to examine the issue and thus maximize the tax benefits.

A deposit in a study fund is considered for the self-employed as a recognized expense that allows them to reduce their taxable income (Photo: Shutterstock)

A savings pillow in the form of savings, so that we have something to lean on in any situation

The corona plague has proved to us that life summons us to unexpected events, which can quickly change the familiar and well-known routine.

So that we can be well prepared for the future, it is worth saving for a gray day.

You can save for example in an investment provident fund, which allows full flexibility and the funds can be withdrawn at any time (7) In an investment provident fund we can enjoy investing in the capital market in a variety of routes of our choice at different risk levels, and move from one route to another freely (8).

There is no need for a large initial amount and you can also deposit relatively small amounts of NIS 300-150 per month. In addition, you can choose to deposit once each time we have some amount available for savings. The investment provident fund has an annual deposit ceiling of NIS 71,000.

Saving

(9).

Ensuring appropriate savings for our purposes, utilizing all the tax benefits available to us and avoiding reckless financial decisions may help us conduct ourselves more wisely in the current crisis, and be prepared for the next crisis as well.

Legal notes:

1. Study fund funds will become liquid in the following cases: if 6 years have passed from the date of the first payment to the same account or if 3 years have passed in respect of an employee who has reached retirement age or in amounts used by the employee or individual for his training (training as defined in the Income Tax Ordinance ], 5761-1961, hereinafter: "the Ordinance")

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