A training fund is known to many as a benefit given to employees, and in an age of competition for employees, it is even a bargaining tool for employers for recruitment needs.
A training fund provided by an employer to an employee is actually a medium-term savings plan, in which the employer deposits for the employee 7.5% of his salary, while 2.5% of the employee’s salary is set aside for the benefit of the fund, an amount that accumulates for the benefit of the employee and can be redeemed within six years for any purpose, or at the end of 3 years of savings, for study purposes.
While the outstanding advantage of the training fund for employees is the fact that most of the savings are deposited by the employer, the question arises What is a training fund for the self-employed and what are its advantageswithout an employer bearing the burden of the deposit.
What is a training fund for the self-employed?
A training fund for the self-employed is based on the principle of saving for the medium term, for the same period as the training funds for employees, and allows self-employed workers who do not benefit from a financial safety net, an accessible and convenient savings channel, which includes tax benefits and management of the fund’s funds in the capital market for growth.
Unlike a bank savings plan, which is subject to strict redemption conditions and earns minimal interest, a training fund for the self-employed is a savings channel that is considered attractive and has many advantages.
Three facts that are important to know about the training fund for the self-employed:
- Recognized expense – A self-education fund is a recognized expense by the tax authorities, which allows to reduce the amount of the annual deposit to the fund (4.5% of the income up to the ceiling set by law) from the amount of the reported income, and to reduce the taxation costs: income tax, social security.
- Exemption from capital gains tax – In the State of Israel, there is a tax law that imposes a tax obligation on investors in a variety of channels, including investors in the capital market. Education funds for the self-employed are considered an investment channel that is managed and invested in the capital market in order to increase the amount of the fund. Unlike deposit funds in other savings channels that are invested in the capital market, for savings in a training fund for the self-employed there is a full exemption from capital gains tax, when the fund is repaid on time and according to the terms of the program (up to the savings ceiling defined by law: NIS 18,960. It is important to know that in the case of early repayment of funds The continuing education fund, a tax will apply for the capital gains created by the fund throughout the savings period in the amount of 25%. The tax will apply for the gains only without touching the savings amount. Capital gains tax for amounts exceeding the defined ceiling will be paid upon withdrawal only.
- Flexibility and mobility – training funds for the self-employed can be moved at any time, both at the administrative and operational level: Fund mobility Home investment houses and managers Investment portfolios According to the saver’s preference and desire, and at the level of managing the fund’s investment channels: splitting the fund into several investments of different risk levels, adapting to the nature and needs of the saver, creating balanced investment portfolios that combine bond investments and solid investment channels with equity investments with increased risk alongside a promising return potential .
The training funds presented impressive returns over the years, and although the year 2022 was not good for investors in general for the savings channels invested in the capital market, when examining the data over the past five years, the training funds were one of the most profitable investment channels with the highest returns.
How to choose a training fund for the self-employed
The investment houses present a variety of plans and savings options with the guidance and professional management of the best financial experts, including savings plans in the form of a provident fund for the self-employed. It is important to remember that this is not a uniform off-the-shelf product, and when choosing a factor for saving and managing the fund, several important parameters must be taken into account:
- Management fees – the investment house will collect management fees as a percentage of the funds of the fund, which will constitute its salary. It is important to compare the management fees at the various investment houses.
- Investment policy – each investment house will bring a different policy and style regarding investment channels: investments at different risk levels, investments in technology, agriculture, real estate"n, investments abroad"To. It is important to get to know the investment policy of the investment house and make sure that it is suitable for the client’s view and the level of risk in which he wants to put his money.
- Performance – The performance of the training funds is in terms of transparent information for the public that can be found on the websites of the investment houses and other financial websites. It is recommended and desirable to compare the performance of the companies when choosing an investment house to manage the fund.