Quick Answer: Leaving Israel does not cancel your Israeli pension savings, and it does not unlock them either. The severance (pitzuim) component can usually be withdrawn once your job ends, tax-free up to NIS 13,750 per year of service (2026 ceiling). Retirement savings in a keren pensia deposited since 2008 are meant to be paid as a monthly pension. Taking them out early as a lump sum is an "unlawful withdrawal", and the fund withholds 35% of the entire amount under Section 87 of the Income Tax Ordinance. A keren hishtalmut is withdrawable after six years, with gains exempt from Israeli tax, wherever you live. For most people the best move is to leave the pension invested, draw it as a pension later, and use the tax treaty with their new country.

Anyone who worked as an employee in Israel, Israelis and foreign nationals alike, has been enrolled in a pension arrangement since the mandatory pension extension order took effect in 2008. When people relocate, they usually ask three questions: can I take the money, how much tax will Israel take, and what will my new country do? The answers depend on which pot the money sits in, so start there.

1. What Pension Savings Do You Have in Israel?

Keren pensia (pension fund)

Under the mandatory pension extension order, the minimum contributions are 6% from the employee, 6.5% from the employer toward the pension, and 6% from the employer for severance, 18.5% of salary in total. Many employers pay the severance component at the full 8.33%. The pension and severance components sit in the same fund but are taxed differently when withdrawn. See mandatory pension for foreign employees.

Keren hishtalmut (study fund)

This is not required by law, but it is common in professional jobs. A typical arrangement is 7.5% from the employer and 2.5% from the employee. It has its own withdrawal rule, covered in Section 4.

Older capital funds

If you have savings in provident funds or managers' insurance from before 2008, some of that money may be "capital" money that can be withdrawn as a lump sum under the older rules. The fund's annual statement shows which money is which.

In Practice – Find Every Account: The Ministry of Finance's Capital Market Authority runs Har HaKesef ("Mountain of Money"), a free search for pension funds, provident funds, study funds and insurance policies registered under your Israeli ID number. You can also ask any fund for a report from the pension clearing house (mislaka pensionit), which pulls data from every fund. Do this before you leave, while you still have an Israeli phone number for the identification codes, and update each fund with your email and foreign address.

2. Pitzuim (Severance) and the Section 14 Arrangement

Most Israeli employment contracts apply Section 14 of the Severance Pay Law 5723-1963, under the general approval issued in 1998. Under this arrangement, the employer's monthly severance contributions replace its severance obligation and are released to the employee when the job ends, whatever the reason, including resignation and emigration. With 8.33% contributions, the arrangement replaces severance in full. With the minimum 6%, it replaces 72% of it, and the employer still owes the remaining 28% only where severance is legally due, for example on dismissal. See the Section 14 arrangement.

When employment ends, the employer files Form 161 (notice of termination), and you choose what to do with the severance money:

  • Withdraw it. Severance is exempt up to the lower of NIS 13,750 per year of service (2026 ceiling) or one and a half times your last monthly salary per year of service, under Section 9(7a) of the Income Tax Ordinance. The excess is taxed as income, and in some cases it can be spread over several years.
  • Leave it in the fund ("continuity of rights" or "continuity of pension"). The money keeps growing and is taxed when you eventually draw it.
In Practice – The Hidden Cost of Cashing Severance: Withdrawing exempt severance can cost you later. Part of the Section 9A pension exemption (the 35% layer of it) is reduced by exempt severance grants you took in the 32 years before retirement. If you might ever draw an Israeli pension, ask the fund, or a tax adviser using the Section 9A calculation (Form 161D), what a withdrawal now would cost you in exemption later. For small balances after a short stay in Israel, cashing out is often still sensible. See severance pay tax in Israel.

3. Keren Pensia: The 35% Early-Withdrawal Rule

Retirement savings deposited since 2008 sit in a fund "for annuity" (kupat gemel le'kitzba). The law expects them to be paid as a monthly pension, not as cash. In practice:

  • Normal route: a monthly pension from retirement age. That is 67 for men; women's retirement age is rising gradually from 62 toward 65. Funds can pay a pension from age 60 in some cases. See retirement age in Israel.
  • Early lump sum: taking the retirement component as cash before then, outside the fund rules, is an unlawful withdrawal (meshicha shelo kadin). The fund withholds tax at 35% of the whole amount withdrawn, principal and gains alike, under Section 87 of the Income Tax Ordinance. Moving abroad does not change that.
  • Small-balance and special cases: the regulations allow some lump-sum payments, for example where the expected pension at retirement would be very small. The rules are technical, so ask the fund what applies to your account before assuming anything.

At retirement, part of a qualifying monthly pension is exempt from Israeli tax under Section 9A of the Ordinance. The maximum exempt share is 57.5% in 2026, rising to 67% in 2028, subject to a monthly cap and your personal history. Older guides that cite a "Section 9(gimel)" exemption for pensioners are wrong: Section 9C is a different provision, dealing with pensions from abroad paid to Israeli residents.

4. Keren Hishtalmut: The 6-Year Rule

  • Six years from the first deposit, or three years if you have reached retirement age, the fund becomes withdrawable. Gains on deposits within the legal salary ceiling are then exempt from Israeli tax. Gains on deposits above the ceiling are taxed as capital gains.
  • The clock runs from the first deposit, even if deposits stopped when you left your job.
  • Earlier withdrawals are taxable: the employer's deposits and the gains are taxed as income, and the fund withholds tax. Funds also allow tax-advantaged withdrawal for continuing education after three years, which is rarely relevant to someone leaving the country.
  • There is no need to withdraw when you emigrate. The account can stay invested, and after six years it is liquid.

For more detail, see our keren hishtalmut guide.

5. Non-Residents, Treaties, and Exit Tax

When do you become a non-resident? Israeli tax residency depends on where your "center of life" is, with day-count presumptions. Leaving Israel does not automatically end it. See tax residency in Israel.

Periodic pensions: many of Israel's tax treaties give the country of residence the main right to tax private pensions. To use that right, get a tax residency certificate from your new country's tax authority and apply to the Israel Tax Authority for an exemption or reduced withholding before payments begin. Without an approval, the fund withholds tax under Israeli rules, and you have to claim the excess back by filing an Israeli return. Treaty wording differs, so read the pension article of yours. See Israel's tax treaties, the US-Israel treaty and the UK-Israel treaty.

Early lump sums: an unlawful withdrawal is not a routine pension payment. Whether a treaty protects it depends on how it is classified, and Israeli tax practitioners report that the Tax Authority may also consider the exit tax (Section 100A) when a former resident claims a treaty exemption on such a withdrawal. Get a professional analysis before you withdraw, not after.

6. US Citizens: The IRS Dimension

  • Not a qualified plan. The IRS does not treat an Israeli keren pensia or keren hishtalmut as a 401(k) or IRA. How contributions and growth are reported each year is a technical question, and US practitioners take different positions. Use a CPA who handles Israeli funds regularly.
  • Saving clause. The US-Israel treaty lets the US tax its citizens largely as if the treaty did not exist. Treaty rules that shift pension taxation to the country of residence therefore help US citizens much less than they help other expats.
  • Withdrawals. A keren hishtalmut that is tax-free in Israel can be fully taxable in the US. Israeli tax withheld on a pension withdrawal, including the 35% on an early one, may be credited against US tax on the same income, subject to the foreign tax credit limits.
  • Reporting. Israeli pension and study-fund accounts are generally reported on FBAR (FinCEN Form 114) if all your foreign accounts together exceed USD 10,000 at any time in the year. FBAR is due April 15, with an automatic extension to October 15. They also go on Form 8938 above the FATCA thresholds, which are higher for taxpayers living abroad. See FATCA and FBAR for Americans in Israel.
  • Social security is separate. The US-Israel social security agreement, in force since 1995, covers Social Security and Bituach Leumi contributions. It does not cover private pension funds.

7. Should You Withdraw Now or Wait?

Reasons to cash out: a small balance from a short stay that is not worth administering from abroad; a severance component that falls entirely within the exemption; or an urgent need for the money, accepting the cost.

Reasons to wait: the 35% early-withdrawal tax applies to the entire amount, including your own contributions. A monthly pension can benefit from the Section 9A exemption or a treaty. The fund keeps growing, and you can switch investment tracks from abroad. Israeli funds also pay pensions to members living overseas.

Illustrative example (hypothetical): A 40-year-old moving to Canada has NIS 150,000 of post-2008 retirement savings and NIS 40,000 of severance money from four years with one employer at NIS 18,000 a month. The severance is within the exemption: the lower of 4 × NIS 13,750 = NIS 55,000 and 4 × 1.5 × NIS 18,000 = NIS 108,000 is NIS 55,000. So it can be withdrawn without Israeli tax, although that reduces the future Section 9A exemption. Cashing the retirement component would cost NIS 52,500 in Israeli withholding (35%), leaving NIS 97,500 before any Canadian tax. Left invested, the same money produces a pension from retirement age that the Canada-Israel treaty may let Canada tax, with no 35% charge. For most people in this position, cashing the severance and leaving the pension invested is the more efficient split.

8. The Process Step by Step

  1. Map your accounts through Har HaKesef or a pension clearing-house report, and download each fund's latest annual statement.
  2. Get Form 161 from your last employer and decide what to do with the severance money: withdraw it with the exemption, or keep it for continuity.
  3. Settle your tax position before any payment. That means confirming when your Israeli residency ended and, if you will rely on a treaty, getting a residency certificate and an Israel Tax Authority approval for exemption or reduced withholding.
  4. Submit the fund's withdrawal or pension request with ID, bank details (Israeli or foreign; most large funds can wire abroad) and the tax approvals. The fund withholds tax according to the approvals it has received.
  5. Keep the fund's tax certificate. You need it for an Israeli refund claim and for your home-country return.
  6. Claim refunds by filing an Israeli tax return if too much was withheld. Refund claims are generally limited to six years.
In Practice: Funds run identity and anti-money-laundering checks before paying out, especially to foreign accounts, and may ask for proof of the account and of your identity. Before you leave Israel, give every fund your contact details abroad and set up online access. Recovering access from overseas without an Israeli phone number is slow. If you might die while the money is still in Israel, name beneficiaries in each fund. See inheriting an Israeli pension fund. For the rest of the departure checklist, see leaving Israel: tax checklist.

Frequently Asked Questions

Leaving Israel does not by itself unlock your pension. The severance (pitzuim) component can usually be withdrawn once your job ends, with a tax exemption of up to NIS 13,750 per year of service in 2026. Retirement savings deposited since 2008 are meant to be paid as a monthly pension, not as cash. If you take them out early as a lump sum, the law treats it as an unlawful withdrawal, and the fund withholds 35% of the whole amount. You can also leave the money in the fund and draw a pension from abroad later.
Israel's main pension exemption, under Section 9A of the Income Tax Ordinance, exempts part of a qualifying monthly pension: 57.5% of the eligible amount in 2026, rising to 67% in 2028. If you live in a country that has a tax treaty with Israel, the pension article often gives the main taxing right over periodic pensions to your country of residence, and you claim relief from Israeli withholding with a residency certificate. Neither the exemption nor treaty relief applies to an early lump-sum withdrawal, which is taxed at 35% under Section 87.
Under Israeli law, a keren hishtalmut becomes withdrawable after six years from the first deposit, or three years if you have reached retirement age. Gains on deposits within the legal ceiling are then exempt from Israeli tax, whether or not you still live in Israel. If you withdraw earlier, the employer's deposits and the gains are taxed as income. Living abroad is not a reason to withdraw, because the fund keeps growing. Your new country may still tax the withdrawal, and the US does.
Often, for periodic pension payments. Many of Israel's treaties give the country of residence the main right to tax private pensions. To use that, you get a tax residency certificate from your new country and apply to the Israel Tax Authority for an exemption or reduced withholding before payments start, or claim a refund afterwards by filing an Israeli return. Early lump-sum withdrawals are harder, because they may not count as a pension under the treaty, and the tax authority may also look at exit tax. Get advice before withdrawing.
Israeli pension funds and keren hishtalmut accounts are not US-qualified retirement plans, and the saving clause in the US-Israel treaty generally lets the US tax its citizens as if there were no treaty. A tax-free keren hishtalmut withdrawal in Israel can still be taxable in the US, and Israeli tax paid on withdrawals may be claimed as a foreign tax credit, subject to limits. The accounts generally must be reported on FBAR (FinCEN Form 114) if your foreign accounts total over USD 10,000, and on Form 8938 above the FATCA thresholds.

Related Guides

Israeli Pension System for Foreign Workers Keren Hishtalmut: The Complete Tax-Free Study Fund Guide Exit Tax in Israel: What Happens When You Leave as a Tax Resident Double Taxation Treaties with Israel: Country-by-Country Guide FATCA and FBAR for Americans in Israel
Adv. Eli Shimony

Adv. Eli Shimony

Licensed Israeli Attorney

Adv. Shimony advises foreign nationals, diaspora families, and returning expats on Israeli tax obligations, pension fund withdrawals, and cross-border financial planning involving Israeli assets.

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