Quick Answer: When you leave Israel, your Israeli pension savings — keren pensia, keren hishtalmut, and pitzuim — remain in your name and do not expire. You can withdraw them immediately or leave them to grow until retirement. Early withdrawal of a keren pensia before retirement age (67 for men, 62 for women) triggers a 35% flat tax under Section 87 of the Income Tax Ordinance. A keren hishtalmut held for six or more years can be withdrawn completely tax-free even as a non-resident. Tax treaties can significantly reduce withholding on periodic pension payments to residents of treaty countries.

Every expat who worked in Israel for any meaningful period has accumulated pension savings they may have forgotten about. Under Israeli law, employers must contribute to a pension fund on behalf of every employee — including foreign nationals on work visas — from the first month of employment. After two or three years in Israel, the accumulated balance can easily reach NIS 50,000–200,000 depending on your salary.

When it comes time to leave, most people focus on visa logistics, property, and bank accounts. The pension funds sit quietly in the background. Then the questions start: Can I access this money? How much tax will they take? Do I have to stay in Israel to collect? What if I'm American? This guide answers all of them.

1. What Pension Assets Do You Have in Israel?

Israeli employers are required by law to contribute to three types of savings vehicles on behalf of each employee. Understanding which vehicle holds your money determines the tax treatment when you leave.

Keren Pensia (Pension Fund)

The main retirement vehicle. Since 2008, employers must enroll every employee in a keren pensia within three to six months of hiring. The combined contribution rate in 2026 is 20.83% of salary: the employee contributes 6%, the employer contributes 6.5% toward retirement savings, and the employer contributes an additional 8.33% as pitzuim (severance pay). The fund invests the contributions in managed portfolios. At retirement, the fund pays a monthly annuity for life.

Pitzuim (Severance Pay Deposits)

The employer's 8.33% contribution is notionally earmarked as severance pay. Under the Section 14 arrangement (discussed below), these contributions belong fully to the employee and are released upon any termination of employment. They are held within the same keren pensia or a separate provident fund (kupat gemel).

Keren Hishtalmut (Study Fund)

A supplementary savings vehicle where the employer contributes 7.5% of salary and the employee contributes 2.5%. After six years, the balance is fully withdrawable tax-free. This is separate from the pension fund and governed by different tax rules. Not all employers offer it, but most professional employment agreements in Israel include it.

In Practice: To find out what pension funds are in your name, contact the National Insurance Institute (NII / Bituach Leumi) pension tracing service or log in to the Ministry of Finance Pensia.gov.il portal. Every Israeli resident with a teudat zehut (ID number) or registered foreign worker can search their accumulated savings across all funds using their tax file number. Fund managers operating in Israel include Clal Bituach, Migdal, Mivtachim, Altshuler Shaham, Harel, Menora Mivtachim, and Phoenix — the portal shows balances across all of them in one place.

2. Pitzuim and the Section 14 Arrangement

The pitzuim component deserves special attention because its tax treatment at withdrawal differs from the retirement savings portion of your keren pensia.

Before 1998, Israeli employers held severance pay as a liability and paid it directly to employees upon dismissal. The General Director's Approval under Section 14 of the Severance Pay Law 5723-1963 changed this: employers who contribute the full 8.33% monthly to a pension fund can waive any additional severance obligation. When employment ends — for any reason, including voluntary resignation or emigration — the employee receives the pitzuim balance in the fund without needing to litigate severance rights.

This is genuinely important for departing expats: if your employer operated under a Section 14 arrangement (which virtually all Israeli employers have done since 2008), your entire pension fund balance — both the retirement savings component and the severance/pitzuim component — belongs to you outright when you leave Israel, regardless of the reason for departure.

In Practice: The Section 14 arrangement is reflected in your employment contract or collective agreement. Ask your HR department or union representative for a copy of the ishur hamager haklali (general director's approval) that covers your position. If you were employed for fewer than 12 months, you may not have accrued pitzuim rights at all — Section 1 of the Severance Pay Law requires a minimum of one year of continuous employment before severance rights vest. The Section 14 exception does not affect this one-year minimum.

3. Keren Pensia: The Tax Rules on Early Withdrawal

The Israeli pension tax framework is built around encouraging people to keep their savings in the fund until retirement. The tax consequences of early withdrawal are intentionally punishing.

Retirement Age Threshold

Israeli retirement age under pension law is 67 for men and 62 for women (though the women's age is being phased upward). Once you reach these ages, pension payments are taxed under the more favourable Section 9(gimel) framework. Before these ages, withdrawals trigger the early-exit penalty.

The 35% Early Withdrawal Tax

Section 87 of the Income Tax Ordinance imposes a 35% flat tax on any early withdrawal from a pension fund. This applies to the entire taxable balance — the retirement savings portion, investment gains, and (in some cases) the pitzuim portion if it is released alongside the retirement savings in a single lump-sum withdrawal. The fund manager withholds the tax at source before transferring the net amount to you.

The 35% rate is not a marginal rate — it applies from the first shekel, regardless of your income in that year. Critically, Israel does not offer a personal tax credit against this amount in most early withdrawal scenarios. The withholding is considered a final tax at source for pension purposes.

What Is Actually Taxed?

Not all your pension balance is necessarily taxable at 35%. The taxable portion depends on whether contributions were made from pre-tax or post-tax income:

  • Employer contributions to the retirement component: fully taxable on withdrawal
  • Employee contributions: if they were deducted from pre-tax income (the norm under Section 47 of the ITO), they are taxable on withdrawal
  • Investment gains: fully taxable
  • Pitzuim component (8.33% employer severance contributions): subject to a separate calculation under Section 9(b) of the ITO — see below

The Section 9(b) Severance Exemption

When pitzuim (severance deposits) are released, they are not automatically subject to the 35% pension tax. Instead, they are treated as severance pay and subject to Section 9(b) of the Income Tax Ordinance, which provides an exemption of up to NIS 13,310 per year of service (the 2026 indexed ceiling). Severance pay up to this ceiling is tax-free; amounts above it are taxed as regular income at marginal rates.

In Practice: For an expat who worked in Israel for three years at a monthly salary of NIS 20,000, the pitzuim component at departure would be approximately NIS 50,000 (20,000 × 8.33% × 30 months). The Section 9(b) exemption for three years of service is NIS 39,930 (3 × NIS 13,310). The excess of NIS 10,070 is taxed as income. However, the Israel Tax Authority may also accept a "real severance" calculation that separates actual employer pitzuim contributions from any excess above the legal minimum — if your employer contributed exactly 8.33%, the taxable excess is usually small. Request a tax certificate (tofes 161) from your pension fund manager that separates the pitzuim and retirement savings components before filing anything with the ITA.

4. Keren Hishtalmut: The 6-Year Rule and What Happens When You Leave

The keren hishtalmut (study fund) has the simplest and most favourable rule in Israeli pension law: after six years of continuous contributions, the full balance is tax-free. This applies to residents and non-residents alike.

The six-year clock runs from the date the fund was opened, not from any particular contribution. If your keren hishtalmut has been open for six years when you leave Israel — even if you made your last contribution 12 months ago — you can withdraw the entire balance, including all investment gains, with no Israeli tax obligation whatsoever.

Early Withdrawal Before Six Years

If you withdraw before six years:

  • The employer's contributions and the gains attributed to them are treated as employment income and taxed at marginal rates
  • The employee's contributions were made from post-tax income and are returned tax-free
  • The fund manager withholds at the standard rate and issues a final tax statement

There is an exception for those who have reached age 60: the holding period requirement drops to three years after age 60, meaning a 62-year-old who opened their keren hishtalmut three years ago can withdraw fully tax-free.

In Practice: Many expats who worked in Israel between 2015 and 2021 now have keren hishtalmut funds well past the six-year mark. If you left Israel in 2022 and haven't thought about your keren hishtalmut since, the clock has continued running. Contact the fund manager — typically Altshuler Shaham, Meitav Dash, or one of the major insurance companies listed on the Pensia.gov.il portal — and request a withdrawal form. You will need your Israeli bank account (or a foreign account if the fund allows international wires), your teudat zehut or passport number, and a bank confirmation letter. Processing typically takes 2–4 weeks from request to payment.

5. Non-Resident Withholding and Treaty Relief

Once you are no longer an Israeli tax resident, Israeli pension payments made to you as a non-resident are subject to withholding at source under Section 164 of the Income Tax Ordinance. The default withholding rate for non-residents on pension income is 25% — separate from the 35% early-withdrawal rate, which is an additional penalty on lump-sum early exit.

For expats who have returned to a country that has a tax treaty with Israel, this withholding is often reducible to zero or a lower rate. Israel has treaties with over 60 countries, including the United States, United Kingdom, Germany, France, Canada, Australia, the Netherlands, and most EU member states.

How to Apply for Treaty Relief

To benefit from a reduced withholding rate, you must apply to the Israel Tax Authority for a tofes 2513 reduced-withholding certificate under Section 167(b) of the Income Tax Ordinance. The process requires:

  1. A residency certificate from your home country's tax authority (in English or with a certified Hebrew translation)
  2. A completed ITA form showing your Israeli pension fund details and the treaty country you are claiming residence in
  3. Submission to the local ITA office (can be done by Power of Attorney)

With a valid Section 167(b) certificate, you instruct the pension fund manager to apply the reduced treaty withholding rate going forward. Processing at the ITA typically takes 4–8 weeks.

In Practice: Under the US-Israel tax treaty (Article 18), pension income is taxable only in the country of residence. A US citizen who has returned to the US and is receiving monthly payments from an Israeli keren pensia is legally entitled to 0% Israeli withholding — all tax on that income is owed to the IRS. To implement this, the US resident applies to the ITA non-resident desk at HaKirya, Tel Aviv (in person or through a representative) with a US IRS residency certificate (Form 6166). Without the certificate, the Israeli fund manager is obligated by law to withhold 25% automatically. Many pensioners simply overpay for years before realising they can reclaim the excess via a non-resident refund application (bahazara) under Section 159 of the ITO — but the lookback window is only six years.

6. US Citizens: The IRS Dimension

US citizens face a particular complication: Israeli pension funds are not treated as qualified retirement plans under US law. The IRS does not recognise the keren pensia as equivalent to a 401(k) or IRA, which means the tax-deferral treatment that makes Israeli pension savings attractive in Israel may not carry over to your US tax position.

Contributions May Be Taxable to the IRS

For a US citizen working in Israel, employer contributions to the keren pensia may be includable in US gross income in the year they are made — because the US does not recognize Israeli pension fund contributions as pre-tax contributions under Section 402(b) of the Internal Revenue Code. Whether they are actually taxed depends on whether the Foreign Earned Income Exclusion (Form 2555) or the Foreign Tax Credit (Form 1116) absorbs the liability in that year.

Distributions Are US Taxable Income

When you withdraw from an Israeli pension fund — early or at retirement age — the distribution is generally taxable as ordinary income in the US. The Israeli tax withheld (35% or 25%) may be creditable as a foreign tax credit on your US return, potentially eliminating double taxation on that amount. However, the credit cannot exceed your US tax on the same income, so if your US marginal rate is lower than the Israeli withholding rate, you may not be able to use the full credit in that year.

FBAR and FATCA Reporting

Israeli pension fund accounts are considered foreign financial accounts for US purposes. If the aggregate value of your Israeli pension accounts exceeds USD 10,000 at any point during the calendar year, you must file FinCEN Form 114 (FBAR) by April 15 (with automatic extension to October 15). Pension accounts above USD 50,000 (single filers) or USD 100,000 (joint filers) at year-end must also be reported on Form 8938 (FATCA).

In Practice: A dual US-Israeli citizen who worked in Israel for five years and is now based in New York with a keren pensia balance of NIS 180,000 (approximately USD 49,000) must report the account on FBAR annually. If they take an early lump-sum withdrawal, the Israeli fund will withhold 35% (NIS 63,000). The net NIS 117,000 (approximately USD 32,000) is transferred to them. On their US return, they report the full NIS 180,000 as ordinary income and claim a foreign tax credit for the NIS 63,000 withheld. Depending on their US marginal rate and other income, this may still leave a residual US tax liability. Consult a CPA licensed in both jurisdictions — specifically one familiar with the US-Israel totalization agreement (signed 2016, effective 2017), which governs social security contributions but not income tax on retirement funds.

7. Should You Withdraw Now or Wait?

The 35% early-withdrawal tax is a real cost, but it is not automatically the wrong choice. The decision depends on several factors that are worth working through before you contact the fund manager.

Arguments for Withdrawing Now

  • The fund underperforms: If your keren pensia has low projected returns and you have higher-yielding investment opportunities in your home country, taking the 65% net (after 35% tax) and redeploying it may be financially superior over 20 years
  • Currency risk: Leaving a large NIS-denominated balance in Israel exposes you to exchange rate fluctuation against your home currency
  • Simplicity: Managing a pension fund from abroad requires annual statements, periodic rebalancing choices, and eventual Israeli filings — a real administrative burden for small balances
  • You are near retirement age: If you are within 3–5 years of Israel's retirement age threshold, waiting may allow you to draw the far more tax-efficient periodic pension instead

Arguments for Leaving the Funds Until Retirement

  • The Section 9(gimel) exemption: Monthly pension payments at retirement receive a significant tax exemption (typically 35–45% exempt) under Section 9(gimel) of the ITO, making the effective tax rate on pension income much lower than the 35% early-withdrawal flat tax
  • The fund continues to grow: Israeli pension funds invest in diversified managed portfolios; a NIS 200,000 balance at age 45 can become NIS 500,000+ by age 67 in a reasonable market scenario
  • Treaty benefits apply at retirement: If your home country has a pension income treaty with Israel, monthly payments at retirement may be taxed only in your home country — potentially at a lower effective rate than the Israeli 35% early-exit tax
In Practice: The break-even calculation is roughly this: a 40-year-old with NIS 150,000 in their keren pensia who withdraws now nets NIS 97,500 after 35% tax. Left in the fund at an average 5% annual return for 27 years until age 67, the balance grows to approximately NIS 380,000 — potentially paying a monthly pension of NIS 2,000–2,500 for life, largely tax-exempt under Section 9(gimel). The net present value of that pension stream almost always exceeds the NIS 97,500 today. The exception is the person who is certain they can generate better-than-5% post-tax returns on the NIS 97,500 deployed elsewhere — a high bar to meet with genuine confidence.

8. The Step-by-Step Withdrawal Process

Whether you are withdrawing early or at retirement age, the mechanics are the same. The fund manager handles the tax withholding; the ITA does not need to be individually notified for standard withdrawals.

  1. Locate your funds: Log in to Pensia.gov.il or contact the NII tracing service. You need your teudat zehut or Israeli tax file number
  2. Request a withdrawal form: Contact each fund manager directly. Most major Israeli funds have English-language service for diaspora clients. You will need to verify your identity with a passport copy and, in some cases, a bank verification letter
  3. Determine treaty eligibility: If you are resident in a treaty country and want reduced withholding on periodic payments (not an early lump sum), apply to the ITA for a Section 167(b) certificate before requesting the payment
  4. Submit the withdrawal request: Complete the fund's form, specifying whether you want a bank wire (domestic or international), and authorising the fund to release your funds. Provide your Israeli bank account (if still active) or foreign account details — most major Israeli funds can wire to foreign accounts in USD, EUR, GBP, and CAD
  5. Receive Form 161: The fund manager issues a tofes 161 (Israeli annual income certificate) reflecting the withdrawal, tax withheld, and the amounts broken down between retirement savings and pitzuim components. You need this for any Israeli tax refund application and for your home-country tax return
  6. File for a refund if over-withheld: If the fund withheld 25% non-resident tax on amounts that are treaty-exempt, file a refund application under Section 159 of the ITO within six years of the payment date
In Practice: International wire transfers from Israeli pension funds trigger Israel's anti-money-laundering review under the Prohibition on Money Laundering Law 5760-2000. The fund manager's compliance team will request a source-of-funds declaration and may ask for employment records or Israeli tax returns before authorising an outgoing wire above NIS 50,000 (approximately USD 13,500). Allow 4–6 weeks for this review in addition to the fund's standard processing time. The review is more stringent for first-time large withdrawals than for accounts with an established history of annual statements and ongoing activity.

Frequently Asked Questions

Yes. There is no legal requirement to remain in Israel to access your pension funds. However, withdrawing a keren pensia before Israeli retirement age (67 for men, 62 for women) triggers a 35% flat withholding tax on the taxable portion of the balance under Section 87 of the Income Tax Ordinance. You can also leave the funds in Israel until you reach retirement age, at which point they are paid as a monthly annuity or partial lump sum under the more favourable Section 9(gimel) exemption rules.
Section 9(gimel) of the Income Tax Ordinance provides a tax exemption on a portion of pension income received at or after retirement age. The exempt amount is calculated using a formula that multiplies your monthly pension by a life-expectancy factor — typically exempting 35–45% of each pension payment. The exemption applies even if you are a non-resident when you start drawing the pension. However, it does not apply to early lump-sum withdrawals before retirement age; those are taxed at a flat 35%.
It depends entirely on how long the fund has been held. If your keren hishtalmut has been open for at least six years (or three years if you have reached retirement age), the full balance — contributions and investment gains — can be withdrawn completely tax-free, even as a non-resident. If you withdraw before six years, the employer's contributions and the gains attributed to them are treated as earned income and taxed at your marginal rate, subject to 25% withholding at source.
Yes, in many cases. Under Israel's tax treaties with the US, UK, Germany, France, and several other countries, pension income is taxable only in the country of residence. If you have returned to your home country and are receiving periodic pension payments from Israel, you can apply to the Israel Tax Authority for a reduced-rate withholding certificate under Section 167(b) of the Income Tax Ordinance. Early lump-sum withdrawals are treated differently and may not benefit from the pension article of the treaty — they are more likely to be characterised as capital income.
Israeli keren pensia, pitzuim, and keren hishtalmut accounts do not qualify as tax-deferred retirement plans under US law. The IRS generally treats Israeli employer pension contributions as taxable income in the year contributed. US citizens who leave Israel should seek guidance from a dual-licensed CPA before withdrawing. Israeli pension balances above USD 10,000 must also be reported annually on FBAR (FinCEN Form 114) and FATCA Form 8938 if the balance exceeds the applicable threshold.

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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