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withdrawing your pension early

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legal warning

legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

As a general rule, withdrawing your pension early is a terrible idea.  In addition to the natural consequences of using money that will be needed later in life, a worker who withdraws early from his pension will pay a hefty fine and lose the ability to invest the withdrawn money tax free.

But there are times when early withdrawal is justified.  For example, I was recently approached by a client who unfortunately will be leaving Israel.  The client paid into a pension fund for a few years, but realizes that since she has around 40 years until retirement, which she plans to spend in her country of origin, she would be better off taking the money with her abroad.

As I mentioned in part one in my series about pensions, there are three parts to a pension fund: (1) the part that you pay in, (2) the part that your employer pays in & (3) the part that your employer pays in that is set aside for severance.

In order to take out the first two parts, you should contact your pension fund and ask to withdraw the funds.  You will be forced to pay a tax of 35% on this money for early withdrawal, and once you agree to this, the money is yours.

The third category, severance, is a bit different.  The severance part (פיצויים) can be taken out whenever you stop working, whether you quit or if you are fired.  If you are fired though, your employer must pay השלמת פיצויים, which means that they must pay the difference of what they already paid in and your final base salary times the amount of years you worked.  But whether you get השלמת פיצויים or not, you can get your money without paying any additional taxes.


6 Comments

  1. Note that the severance pay is tax-free only up to a limit of about 11,650 NIS per year of work.

  2. Lorien Balofsky says:

    I found this blog post while trying to figure out how to withdraw my husband’s severance from his last job. Do you have any information on how to fill out the severance form (161a)? We received ours after my husband left his last job and are clueless on how to go about the paperwork. Also, we received the forms 3 years after he left his job. Will there be any interest accrued on this money? Thanks!

  3. Michael says:

    Do you need to work at a company for a certain amount of time in order to withdraw your severance pay? Meaning, if I work for a company for only 4 months, can I then withdraw the money that was put into my severance account?

    Also, I assume if I switch jobs, the severance money “rolls over” from 1 job to the next and my next employer keeps putting in money to the same severance account. Correct?

    Thanks!

    • jonnydegani says:

      When you leave a job which has paid into your pension (by law it must be done by 3 months, but it can be done sooner) you get your pitzuyim freed via a טופס 161. then you can choose to take it out or roll it over.

  4. leslie s. says:

    I left a job 3 years ago and would like to withdraw my pension. My previous employer will not provide the forms I asked for, and will not respond to my requests. Is there a way for me to withdraw my pension without my employer?

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