Cons of an individual investment account
The benefits of an individual investment account
By opening a special account with the help of a broker or a management company, a citizen can count on a return of 13% of the amount that he either deposited or earned by trading securities on the stock exchange.
According to experts, the profitability of IIA is at least 1.5 times higher than that of bank deposits, so many people resort to this method to form passive income or additional pension savings.
However, IIA has not only pluses, but also minuses. Here we will tell you more about them.
Freeze of funds for three years
Before deciding to open an IIA, you should carefully study its features. In particular, the inability to withdraw funds in the first three years of the existence of the account. If you try to do this, the IIA will be automatically terminated.
At the same time, tax benefits of type B will not be provided at all, and deductions of type A will have to be returned to the state (and even pay penalties for using other people’s funds!).
However, in order not to exclude the amount of money from circulation, you can postpone the deposit of funds into the account for a year or two.
Some investors prefer to use small contributions at first in order to “probe” the market, to learn how to play the stock exchange. And by the end of the three-year period, transfer larger amounts.
Since the life of the IIA is calculated from the moment the contract is concluded, the right to receive deductions is not lost, even if the money was credited to the account a month before the 3-year date.
Income problem
To receive a type A deduction, you must have an official source of income. It is from them that personal income tax is paid, part of which is returned due to tax benefits.
But not all citizens receive a “white” salary or are officially employed at all. And if the income is small, then you won’t have to count on a large amount of return.
In addition, other tax incentives (for example, mortgages) can also reduce the amount of the refund. Therefore, there is only one deduction option left – type B, and its size directly depends on the success of the investment activity.
One time deduction
Tax deductions have some features that are useful to remember:
- in order to receive a refund under scheme A, you need to deposit money – if the money was not deposited, then you should not count on the return of part of the personal income tax;
- the return under scheme B is made only at the time of closing the account, and only according to the results of profitability for the last 3 years – if you received profit from investments for five years, then the deduction will affect only the last three.
- high risks
When trading securities, there is a risk of losing everything if the wrong strategy was chosen or there was not enough information to make profitable decisions. Of course, you can buy bonds or other debt securities, whose profit is fixed – this will minimize the risks.
No government guarantees
While bank deposits are insured, brokerage accounts are not. Money in the account can be lost if a broker goes bankrupt or his license is revoked.
Securities, as a rule, can be immediately transferred to the depository of another broker, but with finances everything is more difficult.
Declarations and communication
The tax deduction cannot be obtained automatically. To issue it, you will have to collect a package of documents, fill out and submit a declaration, and obtain the necessary certificates.
If you have not dealt with financial papers before, all these procedures can cause serious stress.
Additional expenses
Brokers and management companies make their profit through transaction fees and fixed fees. Be prepared for the fact that you will have to pay for the maintenance of the account, the depository, and the execution of instructions. The more active the trade, the greater the amount of remuneration.
However, reviews of IIA owners prove that any minuses are easily covered by pluses. Therefore, you should not refuse to open an account, especially if you have official sources of income.
Individual investment accounts (IIA) allow you to work with all types of financial instruments: stocks, bonds and mutual funds. Interest in such accounts is due not only to potential profitability, but also to preferential taxation for investors who open them.
Types of accounts by type of management
Investments in managers. The most reliable option is to give account management to a management company or an experienced broker, whose specialists themselves will select the most profitable assets.
Investments by copying trades. The market for copying trades is highly developed, both brokerage houses and individual traders are its participants. Services for copying transactions are very popular.
If this option is chosen, the control over his account is carried out exclusively by the client himself, constantly analyzing the market situation and copying the operations of experienced brokers.
Purpose of an individual investment account
Banks offer several products for earning – deposits, deposits. In order to provide money to a financial institution and receive interest from it, you must open an account.
A similar scheme operates in the case of obtaining IIA. To place funds on the exchange, an account must be opened, only in this case – a brokerage account. Its creation was initiated by the state.
The main goal pursued by the authorities was to attract funds to the exchange from persons who place their savings in banks.
What is an individual investment account?
- An individual investment account makes it possible to diversify investments.
- An individual investment account (IIA) is a special investment tool with which you can purchase bonds and shares. In fact, this is a bank deposit, but with some differences.
- An individual investment account makes it possible to diversify investments. In this case, the income will be much higher than from a traditional interest-bearing deposit.
But keep in mind that a securities account is not suitable for everyone. What does IIA mean, how does it work, what are the nuances and reservations, where is it better to open an investment account – you will receive answers to all these questions in the article.
Purpose of an individual investment account
Banks offer several products for earning – deposits, deposits. In order to provide money to a financial institution and receive interest from it, you must open an account.
A similar scheme operates in the case of obtaining IIA. To place funds on the exchange, an account must be opened, only in this case – a brokerage account. Its creation was initiated by the state.
The main goal pursued by the authorities was to attract funds to the exchange from persons who place their savings in banks.
What is an individual investment account?
This tool allows you to purchase and sell securities, currency on the stock exchange. But there is another significant advantage. The owner has the opportunity to receive up to 52 thousand annually.
No effort is required to calculate the tax deduction.