Self-Investment and the 10 Year Rule
Following our last article about the potential to defer tax indefinitely (click here to read), this time we will shed some light on one of the big advantages of this particular solution - The ability to self-manage or to stay with your existing investment manager. That is, you can either manage your investments on your own (making it very economical), or you can have your tried and trusted investment manager, both Israeli or non-Israeli, manage your funds for you.
In Israel, this type of investment account is called an IRA – an Individual Retirement Account. This is not to be confused with the US version of the acronym, which, whilst standing for the same thing, refers to a different underlying vehicle. It is also not to be confused with the British Isles version, but let’s not go there….
If your investments have been managed by someone based in the country you made Aliyah from during these first 10 years, this vehicle can be extremely useful. This is because it can allow you to take advantage of the Israeli tax benefits whilst potentially staying with your existing investment manager from overseas. Of course if you want an Israel-based manager (perhaps because you want some Shekel exposure) this too is possible.
Therefore, in the few paragraphs below, we will give you an outline of some of the characteristics, rules and processes for this type of investment account.
How Does it Work?
Your IRA can be managed either through an Israeli bank of your choice (including your existing one), the trading platform of the IRA provider, or a bank overseas (that the IRA provider has agreements in place with). The bank account is opened in the name of the IRA provider “In Trust For (your name)…”.
You or your fund manager will then manage the investments through the platform of the financial institution that the account was opened with.
What Are the Advantages?
The advantages of using an IRA can include:
You decide the exact make-up of your portfolio – the allocation, what’s actually in it, and all other aspects of the portfolio
You are in control of your portfolio
You can have an investment manager of your choice manage the portfolio for you (including one who has been advising you since making Aliyah)
You can keep your investments overseas if you want
Very low trading fees for buying, selling and safe custody of securities
Tax advantages (see recent article)
Can I Invest in Anything That I Want?
You can invest in most things, such as most liquid securities, bonds, local and foreign mutual funds, ETFs, structured products, etc. There are a few restrictions however, although for the majority of investors these restrictions will be immaterial. These include:
When investing in foreign securities, they must be issued in a country that is both part of the OECD and has a credit rating of BBB- or higher.
No single company’s securities (excluding funds) can make up 10% or more of your portfolio.
Options cannot represent more than 5% of the portfolio value
One of the main obstacles that stop Olim from investing in potentially more efficient investments in Israel is being unfamiliar with the local institutions, and, quite frankly, often not knowing who to trust to manage their investments. The IRA goes a long way to mitigating this obstacle as you or your trusted investment manager have total control over the investments.
Of course there is no one-size-fits-all, and it is important to consider a variety of factors when deciding whether this is a suitable solution for you. However we believe that the combination of an IRA together with the Tikun 190 Provident Fund can potentially provide an excellent solution for many Olim looking to save and invest in the most efficient and appropriate manner possible.
At Israel At Last we advise as to whether this is an appropriate vehicle for you, as well as provide assistance on all aspects, such as setting it up, offering a suitable investment manager and advising as to which company to use for this vehicle.
Contact us here to take advantage of this solution