IIA vs brokerage account: what is the difference
In addition to a brokerage account, investors can open an IIA – an individual investment account. Both accounts allow you to make transactions on the exchange, but each has a number of conditions.
A brokerage account is an account on which all transactions, operations and assets of a client under a brokerage service agreement are recorded, and the operations themselves are performed on behalf of the client on the stock exchange or on the over-the-counter market.
IIS is an individual investment account. Type of brokerage account for long-term investments with preferential tax treatment. The main limitation is that money cannot be withdrawn from the account for three years. If you withdraw money during this period, the account will be closed, and there will be no tax deductions (and you will have to return the money received earlier).
A qualified investor is an investor who has confirmed that he understands how the financial market works and knows how to manage capital, or has sufficient capital and is ready to take on the increased risks associated with complex financial products. This status gives access to instruments that are not available to other investors.
Why you need a brokerage account
By opening a brokerage account, the future investor will give the broker the right to make transactions in his own interests. The broker sends an order – to buy or sell a security, according to what the client instructs him to do.
From this point of view, brokerage accounts are no different from each other, and their division by type is a convention. But each account has its own peculiarities of use, including in terms of taxation.
There are two types of deduction:
Type A tax deduction – deduction from the amount deposited on the IIS for the calendar year. The tax returns this money to a bank account. They can be used in any way. For example, reinvest – invest again in stock instruments, stocks and bonds
Type B tax deduction – exemption from personal income tax on income from IIS. Such a deduction is received upon closing the IIA if the account has been opened for more than three years. The amount of the accrued tax simply remains on the account.
Cons of IIA
IIA is great for long-term investments and savings. The disadvantages of using it are also associated with this:
You cannot withdraw money from the account for three years, otherwise the account will be closed, and the type A tax deduction already received will have to be returned.
What are the benefits of a brokerage account
If an investor plans to adhere to an active investment strategy – often make transactions with shares, withdraw part of the money from the account and replenish without restrictions, then a regular brokerage account is suitable for this. There are more opportunities to use such an account, and fewer restrictions.
withdrawal of funds without restrictions. Money can be withdrawn from your account at any time and in any amount. The broker will immediately withhold tax if income is received in the current year.
All tools are available. You can buy any securities in accordance with your qualifying status, including those not available for IIS.
as a qualified investor – to qualify by the amount of funds: to invest more than 6 million rubles.
When a brokerage account is unprofitable
The main disadvantage of a brokerage account is that there are no tax deductions like on IIA.
The brokerage account has a three-year tax credit for investors. It differs from the type B deduction by the conditions: securities must be owned for at least three years and the exemption cannot exceed a certain amount.
Whichever account you choose, you need to remember the basic rules of investing – replenish your portfolio regularly, look at the financial performance of companies, monitor news and market analytics, and diversify your investment portfolio.
A regular brokerage account gives the client the opportunity to make transactions with any assets (bonds, stocks, futures, currencies, etc.), and therefore, make a profit from trading on the stock exchange.
At the same time, the income received by the client is subject to personal income tax in the amount of 13%, and the broker who opened the account is a tax agent, that is, he pays tax for the depositor.
On the one hand, IIS gives the client a number of advantages that cannot be obtained by being the owner of a regular brokerage account. On the other hand, it is not beneficial for every depositor to freeze funds for 3 years.
And this means that it is more profitable for investors who receive income from bonds to open a regular brokerage account, since income tax exemption is already provided for them. At the same time, they still have the opportunity to freely dispose of funds.
As for investors involved in the purchase and sale of securities, it is much more profitable for them to open an IIS in terms of profitability, since the average yield from such an account can reach 21% per annum due to tax deductions. IIS is also beneficial for investors with large amounts.
A brokerage account allows you to trade on currency and cryptocurrency exchanges, forex, and the stock market. Technically, of course, the broker opens separate accounts for each task, but in the “Personal Account” they are all reflected as one, which is very convenient from the investor’s point of view.
IIA allows you to buy only those securities that are in circulation on Russian stock exchanges.
Netting.At the end of the year, the investor can combine financial successes and failures in all brokerage accounts, that is, balance losses and incomes, which will reduce personal income tax. With IIS, this is simply not possible.
Is it possible to transfer securities from BS to IIA?
No. But the mechanism works in the opposite direction: an investor can transfer assets from IIS to BS, while the investment account will be closed.
Is it possible to open an IIS without opening a simple brokerage account?
Yes. But most often, brokers open two accounts at once, so that there is somewhere to transfer money and assets if suddenly the IIA is closed.