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In short, an individual investment account (IIA) is a way to diversify your investments and, possibly, make money. It sounds attractive, and a simple calculation shows that IIS can bring significantly more money than a traditional bank deposit with interest. But you need to clearly understand that IIS involves risks and is not suitable for everyone.
Who is IIA suitable for?
You already have a deposit in the bank, that is, you have prepared yourself an airbag. But there is still free money (or suddenly appeared) - and you decided to take a chance.
What is the risk?
Investing in the securities market is always a risky activity. You can lose all your funds as a result of bad luck in the financial market. A deposit in the bank will definitely bring you a known percentage in advance, albeit a small one. IIA is a way of investing, and no one can guarantee you its profitability and even safety.
Please note: investments in IIA are not insured by the Deposit Insurance Agency, that is, the state does not guarantee a refund if your broker or manager loses his license. Funds on the IIA are not insured, but if they are invested in securities, then even after the bankruptcy of the broker or the management company, you will remain the owner of these securities.
What then are the advantages of IIA?
IIA - an account for operations with securities. The main advantage of this account is encouragement from the state: the ability to receive a tax deduction. The deduction allows you to pay a lower amount of tax or get back the tax already paid.
Read more about the types of tax deductions in the article “What is a tax deduction?".
IIA features:
You can choose between two types of tax deduction:
Contribution tax deduction
During the year, you deposit a certain amount on the IIA, but not more than $ 15000.
After the end of the tax period, you can receive a tax deduction in the amount of 13% of the amount that you paid for the year, but not more than $ 1000 (the maximum amount for calculating the tax deduction is $ 6000).
Deduction conditions:
How do I get a contribution deduction?
To receive such a deduction, you will need to submit a package of documents to the tax service no later than April 30:
An example of a calculation for a tax deduction of the first type (contribution deduction)
Let's assume that every year you will deposit $ 6000 into your account. For the calculation, the average return (10%) is used, it is conditional and does not contain the promise of real income. The calculation does not take into account the broker's or manager's commission.
Tax deduction from income that is taxable
For all three years, you deposit a certain amount on the IIA, but not more than $ 15000 per year. After three years, for everything that you earned on your IIA in excess of contributions, you will not have to pay personal income tax.
Deduction conditions:
How do I get an income deduction?
To get such a deduction, you need to take a certificate from the tax office stating that you have not tried to get a deduction of the first type - for a contribution - over the past years.
You give this certificate to a broker or manager, who becomes a tax agent for you in this case and does not withhold tax from it during the payment of income to you.
An example of a calculation for a tax deduction of the second type (deduction for income)
Let's assume that every year you will deposit $ 6000 into your account. For the calculation, the average return (10%) is used, it is conditional and does not contain the promise of real income. The calculation does not take into account the broker's or manager's commission.
How to open IIS?
Brokers and managers can open IIA. The bank will be able to open it if it has a broker's or manager's license.
Who are brokers and managers?
These are organizations that are professional participants in the securities market. They carry out brokerage or securities management activities. Their functions are similar, but there is also a difference.
Broker
If you open an account with a broker, you can independently make transactions on the exchange through the trading terminal (if available) - buy and sell stocks, bonds, conclude contracts that are derivative financial instruments (DFI). But in order to do all this, you need to be well versed in the market (or be ready to dive into all the subtleties): study it, follow events, painstakingly and thoughtfully count and compare. In general, the broker does not control which financial instruments his client invests in. However, he must ensure that the securities that the client purchases are consistent with his level of investment and legal requirements.
Manager
If you open an IIA with a manager, then he will manage your money. You don't have to dive into the details, since you won't be able to do anything with your account - all operations are performed only by the manager. This does not mean that the manager can do whatever he wants with your money - he acts within the framework of the agreement that you conclude. It is the contract that limits the actions of the manager, so it is important to carefully read it and understand all of its provisions. By concluding an agreement with a manager, you are writing a strategy. If this strategy is conservative, the return will not be very high, but the risk will be minimal.
In any case, whoever you choose - broker or manager - check that he has the appropriate license.
And of course, compare offers: each broker or manager offers its own conditions, a set of financial instruments and tariffs for servicing the account.
How much to deposit and how to manage the money?
The amount that you can deposit on the IIA has a maximum limit, but there is no starting minimum - it is determined by the broker or manager. And also common sense. Of course, you can put a small amount on the IIA, for example, $ 500, but you won't earn much, and the deduction from this amount is also small. In addition, you will give part of the money for maintaining the account and for the commission to the broker or manager.
Please note that it is better to open IIA for a period of at least three years. Of course, you can withdraw funds before this deadline, but then the IIA loses its attractive bonus in the form of a deduction: you will have to return the deduction and pay tax. There is no maximum time limit for IIA.
The investment risk depends on the level of qualification of the investor. The more experience and knowledge you have, the wider list of investment documents is available to you. Your broker or manager should make sure that the securities you buy match your investment level. For example, securities intended for qualified investors can only be purchased if you have received this status.
Where can IIS funds be invested?
Money from IIA can be used in the same way as money from a regular brokerage account or transferred to a trustee. They can be used to buy stocks, bonds, shares of mutual investment funds, other securities, including foreign ones, to conclude DFI contracts.
But there are exceptions.
All exceptions are specified. What else is useful to know about IIA?
Who is IIA suitable for?
You already have a deposit in the bank, that is, you have prepared yourself an airbag. But there is still free money (or suddenly appeared) - and you decided to take a chance.
What is the risk?
Investing in the securities market is always a risky activity. You can lose all your funds as a result of bad luck in the financial market. A deposit in the bank will definitely bring you a known percentage in advance, albeit a small one. IIA is a way of investing, and no one can guarantee you its profitability and even safety.
Please note: investments in IIA are not insured by the Deposit Insurance Agency, that is, the state does not guarantee a refund if your broker or manager loses his license. Funds on the IIA are not insured, but if they are invested in securities, then even after the bankruptcy of the broker or the management company, you will remain the owner of these securities.
What then are the advantages of IIA?
IIA - an account for operations with securities. The main advantage of this account is encouragement from the state: the ability to receive a tax deduction. The deduction allows you to pay a lower amount of tax or get back the tax already paid.
Read more about the types of tax deductions in the article “What is a tax deduction?".
IIA features:
- you can only have one IIS. If you open the second one, then the first one must be closed within a month;
- you can get a tax deduction;
- contributions can only be made in rubles;
- the maximum contribution is $ 15000 per year;
- for tax deductions to apply, the account must be open for three years.
You can choose between two types of tax deduction:
- Contribution deduction.
- Deduction from income that is taxable.
Contribution tax deduction
During the year, you deposit a certain amount on the IIA, but not more than $ 15000.
After the end of the tax period, you can receive a tax deduction in the amount of 13% of the amount that you paid for the year, but not more than $ 1000 (the maximum amount for calculating the tax deduction is $ 6000).
Deduction conditions:
- to receive a deduction, you must have official income and pay personal income tax. For example, you are officially employed and pay taxes. Or you live on income from renting an apartment and honestly declare it to the tax office;
- if after three years you close an investment account, you will be required to pay tax on the profits that you receive from transactions with securities;
- if you close the account earlier than three years later, you will have to pay personal income tax and return the tax deduction back.
How do I get a contribution deduction?
To receive such a deduction, you will need to submit a package of documents to the tax service no later than April 30:
- certificate;
- a certificate of income during the year, for example, a certificate of salary;
- an agreement with a broker or manager on the opening of an IIA;
- documents that confirm the fact that money was credited to the IIA (for example, payment orders, receipts);
- tax refund application;
- details of the bank account to which the money will be transferred.
An example of a calculation for a tax deduction of the first type (contribution deduction)
Let's assume that every year you will deposit $ 6000 into your account. For the calculation, the average return (10%) is used, it is conditional and does not contain the promise of real income. The calculation does not take into account the broker's or manager's commission.
Tax deduction from income that is taxable
For all three years, you deposit a certain amount on the IIA, but not more than $ 15000 per year. After three years, for everything that you earned on your IIA in excess of contributions, you will not have to pay personal income tax.
Deduction conditions:
- you have opened only one IIA (the law allows cases when during one transitional month you can have two IIA - during this month you must have time to open one account and close another);
- you do not need to have official income to receive a deduction;
- you will receive a deduction only after three years from the date of opening the account;
- if you close the account earlier than three years later, you will have to pay personal income tax on the income received.
How do I get an income deduction?
To get such a deduction, you need to take a certificate from the tax office stating that you have not tried to get a deduction of the first type - for a contribution - over the past years.
You give this certificate to a broker or manager, who becomes a tax agent for you in this case and does not withhold tax from it during the payment of income to you.
An example of a calculation for a tax deduction of the second type (deduction for income)
Let's assume that every year you will deposit $ 6000 into your account. For the calculation, the average return (10%) is used, it is conditional and does not contain the promise of real income. The calculation does not take into account the broker's or manager's commission.
How to open IIS?
Brokers and managers can open IIA. The bank will be able to open it if it has a broker's or manager's license.
Who are brokers and managers?
These are organizations that are professional participants in the securities market. They carry out brokerage or securities management activities. Their functions are similar, but there is also a difference.
Broker
If you open an account with a broker, you can independently make transactions on the exchange through the trading terminal (if available) - buy and sell stocks, bonds, conclude contracts that are derivative financial instruments (DFI). But in order to do all this, you need to be well versed in the market (or be ready to dive into all the subtleties): study it, follow events, painstakingly and thoughtfully count and compare. In general, the broker does not control which financial instruments his client invests in. However, he must ensure that the securities that the client purchases are consistent with his level of investment and legal requirements.
Manager
If you open an IIA with a manager, then he will manage your money. You don't have to dive into the details, since you won't be able to do anything with your account - all operations are performed only by the manager. This does not mean that the manager can do whatever he wants with your money - he acts within the framework of the agreement that you conclude. It is the contract that limits the actions of the manager, so it is important to carefully read it and understand all of its provisions. By concluding an agreement with a manager, you are writing a strategy. If this strategy is conservative, the return will not be very high, but the risk will be minimal.
In any case, whoever you choose - broker or manager - check that he has the appropriate license.
And of course, compare offers: each broker or manager offers its own conditions, a set of financial instruments and tariffs for servicing the account.
How much to deposit and how to manage the money?
The amount that you can deposit on the IIA has a maximum limit, but there is no starting minimum - it is determined by the broker or manager. And also common sense. Of course, you can put a small amount on the IIA, for example, $ 500, but you won't earn much, and the deduction from this amount is also small. In addition, you will give part of the money for maintaining the account and for the commission to the broker or manager.
Please note that it is better to open IIA for a period of at least three years. Of course, you can withdraw funds before this deadline, but then the IIA loses its attractive bonus in the form of a deduction: you will have to return the deduction and pay tax. There is no maximum time limit for IIA.
The investment risk depends on the level of qualification of the investor. The more experience and knowledge you have, the wider list of investment documents is available to you. Your broker or manager should make sure that the securities you buy match your investment level. For example, securities intended for qualified investors can only be purchased if you have received this status.
Where can IIS funds be invested?
Money from IIA can be used in the same way as money from a regular brokerage account or transferred to a trustee. They can be used to buy stocks, bonds, shares of mutual investment funds, other securities, including foreign ones, to conclude DFI contracts.
But there are exceptions.
- If the client has an IIS and a regular brokerage account, you cannot use the money on the IIA to fulfill obligations on a regular brokerage account.
- You cannot work with a forex dealer through IIA.
- The manager can transfer part of the money from the IIA to a deposit in the bank, but the amount of the deposit cannot be more than 15% of all money on your IIA. Money from an IIS opened with a broker cannot be deposited.
- It is possible to buy securities of foreign issuers only at auctions.
All exceptions are specified. What else is useful to know about IIA?
- you can have only one IIA at a time. If you want to open a new account with another company, you will have to close the first IIA;
- you cannot turn an already opened account with a broker or manager into an IIA;
- if you are hoping for a tax deduction, you cannot withdraw funds and close the account earlier than three years after its opening;
- the date of opening the IIA with the broker is the date of signing the agreement, with the manager - the date of depositing funds into the account
- money from IIA can be transferred from one broker or manager to another broker or manager. To do this, a new broker or manager will have to open a new IIA, and close the old one within a month;
- You can replenish your account at any time, contributions are not date-bound.