It is considered that the best way to preserve savings is to open a bank deposit or invest in real estate. However, there is another method that can potentially offer greater benefits and convenience. It is called investing in securities, which requires an Individual Investment Account (IIA).
What is an IIA, who can open it, and how?
Investments made in an IIA are directed towards instruments of the stock market, including stocks, government and corporate bonds, including Eurobonds, traded on Russian exchanges, as well as exchange-traded funds (ETFs), mutual funds, and so on.
What is the difference between an IIA and a regular brokerage account?
- The income received is not only from investment profits but also from one of two types of tax deductions for personal income tax;
- A single physical person can have only one open IIA;
- The invested amount cannot exceed 400,000 rubles or 1,000,000 rubles per calendar year depending on the account type;
- The minimum period for opening an IIA is three years, with no maximum term;
- Investors receive money only after closing the account;
- If an investor withdraws any amount from the IIA before the minimum period (three years), the IIA agreement is terminated, and the returned tax benefits must be repaid.
Who and where can open an IIA
Since January 1, 2015, opening an IIA has been available to private individuals – tax residents of Russia. An Individual Investment Account can be opened at a bank, with a broker, or a management company with a stock exchange license. Information about financial organizations providing this service can be found on the official website of the Moscow Exchange.
What tax benefits are provided for IIAs
When opening an IIA, investors can choose one of two types of tax deductions for personal income tax.
- First type of deduction: IIA type A
This type of deduction is more suitable for officially employed investors who pay personal income tax. It involves returning 13% if the annual investment amount does not exceed 400,000 rubles.
That is, by opening an IIA-A for three years and having 400,000 rubles on it annually, the investor will additionally receive 52,000 rubles (13% of 400,000 rubles) each year.
- Second type of deduction: IIA type B
This type of deduction is chosen by traders who actively trade on the exchange and earn a good income. It involves the IIA-B being completely exempt from paying tax on the income received, provided the account balance is at least 1,000,000 rubles. The income amount is irrelevant.
How to open an individual investment account
Opening an IIA is not complicated. To do this, you need to contact a financial organization and have your passport with you, and in some cases, your INN and Insurance Individual Account number.
Many banks, management companies, and brokers provide online IIA opening services.
Online IIA application page in Sberbank
For example, opening an IIA at Sberbank, the investor will pay 1% of the amount of each deposit into the IIA during the year from the date of its opening and from 1% to 1.7% per year of the total amount of money deposited on the IIA. But opening an IIA online or through the mobile app of Sberbank, the investor will not have to pay 1% of the deposit amount. The fee will be 0%.
In general, each broker, bank, or management company has its own nuances, which must be studied before opening an IIA.
Are there risks in IIAs?
Since IIAs are intended for trading operations with securities, naturally, there is always a possibility of losing funds if the market situation turns out that way. No matter what investment strategy the management company offers, the profitability and even the safety of the IIA are not guaranteed.
Moreover, the Agency for Deposit Insurance does not insure IIA funds. If the financial organization where the investor opened the IIA loses its stock exchange license, the state does not guarantee the return of money.
Notes and tips
- To start working and count the 3 years, simply open an IIA without trading. Therefore, if you have plans to learn to trade on the stock market without making investments yet, open an account today to be able to take profit and investments earlier.
- Tax deductions do not necessarily have to be reinvested.
- You pay personal income tax when receiving a salary, buying an apartment, etc. All these taxes can be indicated for the deduction.
- In a year, you can receive a maximum of 52,000 rubles as a benefit.
Summary
Undoubtedly, the IIA has a whole set of advantages and disadvantages. However, compared to bank deposits, where the real interest rate often does not reach inflation, the individual investment account, especially with the tax deduction, is a convenient way to preserve and increase your funds.
FAQ
What is an Individual Investment Account (IIA)?
An IIA is a brokerage account designed for investing in securities with tax benefits.
Who can open an IIA?
Private individuals who are tax residents of Russia can open an IIA.
What are the tax benefits of an IIA?
Investors can choose between two tax deductions: a 13% refund on investments up to 400,000 rubles or full tax exemption on income if the account balance is at least 1,000,000 rubles.
