Each parent wants the best future for his/her children. To achieve it, it is important to invest in education and personal development, but it is also important to pay attention to the financial aspect and save for their future. There are many ways to save for children and one of them is the savings plan for each child track initiated by National Insurance and the Ministry of Finance. However, if you are parents of children who are American citizens, it is important to consider a few things before making choice regarding this savings channel.
Why Should You Save for Your Child?
MasAmerica’s team has gathered to explain to you everything you need to know about savings plan for each child for American citizens in detail, so you would make the best choices. To begin with, let us explain the high importance of savings plans for your children. Throughout their lives, when their children grow up and become independent adults they will need money for various significant needs.
- Academic Education: many young adults choose to attend universities and colleges to acquire a profession, receive a degree etc. It is a significant investment in the children’s future as it enables them to get into the labour market and themselves. Yet, it is not a small financial expense and a time-consuming investment so that it is hard to work throughout the academic year. For this reason, it is important for the young adults to have accessible money in advance.
- Opening a Business: many young adults choose to become independent and open the business they have dreamed of. Of course, every business starts with a financial investment, for which the savings plan in relevant.
- Equity: at a certain stage, your children will move out and would like to have their own house. Whether it will be in Israel or overseas, it important they will have the initial equity to receive a property purchasing permit.
- Economic Security Net: A large specific cause in not necessarily needed. Savings plans for your children will be able to give them an economic security net to help them dare, leave their comfort zone and know they have something to lean on.
What is a Savings Plan for Each Child?
A few years ago, the Israeli Ministry of Finance and the National Insurance Institute presented a new blessed initiative called Savings Plans for Each Child. As a part of this plan, National Insurance deposits ₪51 to the child’s savings plan each month until he/she reaches the age of 18. Parents have the option to add additional ₪50 from the children allowance paid to them monthly, hance doubling the monthly saving. The saving account become available for the child the moment he/she reaches the age of 18 and he/she may choose how to use it. A savings plan for each child is opened for each child separately from the first month of their lives.
What are the Advantages of a Savings Plan for Each Child?
The savings plan for each child has several major benefits:
- Compound interest – when you begin to save and invest in a track starting with the birth of your child, you use the principle of compound interest, which increases your saving each month so that at the end of the period your children may have a significant savings account.
- A right from the state – it is one of the rights the state gives the parents, and it is recommended to use it. You are given a monthly amount of money automatically, and as tax-paying citizens you are entitled to receive this money and invest it in your child.
Where Can One Open a Savings Plan for Each Child?
As parents you have the possibility to choose where this money is invested. There are two options:
- A provident fund for investment: a provident fund for investment is a track offered by investment companies which enables saving through different channels.
- Bank: in the different banks on the list of the National Insurance Institute there are different savings tracks and one can choose to invest the savings plan for each child’s money there.
Pay attention that if you do not choose yourselves, the National Insurance Institute will decide where to invest in your name.
Paying Taxes for American Citizens in Israel
As you probably know, if you are American citizens living in Israel, the American tax laws are still applied on you. This means that any accumulated income in your different savings accounts is subjected to the American tax system, and you must report it. It is of course relevant to the savings plan for each child track. We in MasAmerica, take care of all the USA taxes related bureaucracy to ease such situations exactly.
Where to Open a Savings Plan for Each Child as American Citizens?
If your children hold an American citizenship, our tip at MasAmerica is to open the savings for each child plan in the bank rather than in investment house which offer provident funds for investment. Despite the temptation to open a provident fund for investment due to it potential returns, as American citizens the right choice is a bank savings plan.
The main reason to avoid provident funds is that the various investment houses in Israel are foreign investment companies according to the laws of the USA (PFIC). These bodies are subjected to high taxation by the American tax authorities and even if you do not withdraw the money, you still must file long annual cumbersome report which may cost you money. Therefore, this is less preferred option for American citizens.
On the other hand, investments in regular bank accounts are not included in the PFIC category. Thus, the filing requirements are much simpler. Nevertheless, we would still recommend that you turn to a professional counselling to check with track is better for you according to the American tax regulations.
Professional Counselling
As American citizens there are plenty of things to be considered for any financial decision you make. It complicated the routine and may cost precious time – without even relating to human mistakes happening due to lack of thorough knowledge. We at Mas Americe know how confusing all these bureaucracies may be and therefore we are here to assist. Our team of experts at MasAmerica can assist you navigate through the USA tax laws and your different savings plans in Israel. With our specialized in the American law accountants, we could help you handle the forms, the payments and any additional thing. Contact us today and spare yourselves a headache and precious time.
Frequently Asked Questions Regarding A Savings Plan for Each Child
When the children set out to their adult lives, they need significant amounts of money to invest in their future, including education, work, real estate etc. An early savings plan uses the advantages of compound interest and enables your first investments grow over time.
It is a plan in which National Insurance deposits ₪51 per child in a special savings plan, with an option to add ₪50 of child allowance. The money is available when the child reaches the age of 18.
There two track available to choose from – opening a provident fund for investment at an investment house or opening a savings account in the bank. If you do not choose, National Insurance will choose for you.
The safest choice is to invest in one of the banks on the National Insurance’s list. As American citizens you have the filing requirement for savings plan incomes, which requires annual reports. Provident funds for investments are considered as foreign investment companies which require high taxation, as opposed to banks. Thus, there a lower chance of a complicated report and paying high taxes.
