Shomer Shekalim

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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later in life, a worker who withdraws early from his pension will pay a hefty fine and lose the ability to invest the withdrawn money tax free.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.

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