Monday, December 5, 2016

Bituach Leumi's New Savings Plan for children

Bituach Leumi recently announced that the new Savings Plan for children will be implemented in the next few weeks. Here's a quick summary of how it works:

1. Basic Plan: Bituach Leumi will deposit 50NIS per month into a savings or investment account on behalf of minor children who are eligible for kitzbat yeladim (the Child Stipend). There are a number of different options for savings and investment accounts, more information appears below.

2. Matching Fund Plan - parents can choose to match the 50NIS by choosing to direct 50NIS of the Child Stipend, every month, to the child's savings or investment account.

In order to choose what type of savings account/investment acccount your child will receive, and to choose to match the deposit, you must fill out a form online. Find this form here. (It's in Hebrew. If you need help, please ask a friend or relative who speaks Hebrew to help you. It shouldn't take more than 5 minutes to fill out!)

You can review all the options on Bituach Leumi's information site that they've put up about this specific program. Check out the different funds and banks and terms as they apply to your children!

Each child's account will be funded on the 20th of each month. They will be funded with retroactive payments of 50 shekels per month for the period covering May 2015 - December 2016 (total 1,000 NIS). The retroactive payments will be made in "tashlumim" - the first one will be in January 2017, in the amount of 100 shekels. The second one will be 400 NIS, in February 2017. The others will be announced later.

If your child turned 18 after May 2015 but before January 2017, an account WILL be funded in their name. Your now-adult child should receive a letter addressed to him/her explaining what s/he needs to do. 

Upon the child's 18th birthday, the account will be funded with a 500 NIS bonus. If s/he does not withdraw the money before his/her 21st birthday,  a 500 NIS bonus will be deposited upon his/her 21st birthday. 

There is an option to turn the account into a tax-exempt retirement plan that will be disbursed in monthly amounts after retirement. I am not sure how many people will actually do that, but the option is there!

The deadline for filling out this form is June 1, 2017 (note corrected date!). If you don't fill it out by then, Bituach Leumi will choose a default option for you.

Please note - any fees associated with these savings/investment accounts will be covered by Bituach Leumi until your child turns 21 (note corrected age!). At that point, fees will be deducted from the account as allowed by law.

Points to consider:

1. Bank accounts are very safe, and the returns are pretty predictable (you will get to choose between fixed rate and variable rate accounts, and accounts that are linked to the consumer index...). Kupot Gemel are investments (i.e. stocks and other higher risk investments). You can make more money with them, but you can also lose money with them. It's a risk. Weigh your own willingness to take risks before choosing!

2. If your children are US citizens, there may be some sort of tax penalty if you choose one of the "kupat gemel" investment fund options - BUT it is far too soon to know for sure. It may eat up some of the gains, but it is possible that it will still be worthwhile. (But don't make any decisions because of what I wrote. I am just expressing my personal view. Please make your own decision about how you want to approach this particular risk as well!)

3. If you choose a bank option, you may not later choose to switch to an investment fund option. If you choose an investment fund, there will be designated times when you can change tracks within the investment options IF you choose the option with "tachanot yetziah".

4. There are many people talking about the different investment options. Word on the street is that Altschuler-Schacham and Psagot have yielded better returns in the last 5 years than the others. Of course that does not in any way guarantee future positive returns. Just something to think about.

This post is for information purposes only, and my personal opinions may be expressed. This post should not be taken as advice or instructions regarding investments in any way.

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