Individual retirement account (IRA) is a financial product that allows the client to have complete control over the investment management of provident and training funds. This product is an alternative to choosing the specific investment channels offered by management companies.
The IRA is a platform that enables personally adjusted management based on the individual’s nature, professional understanding, and view of risk, with the option of updating the investment portfolio at their preferred frequency.
When someone chooses to invest via an IRA, the company in which they open the IRA (“the company”) provides the operation platform (a stock exchange member or one of the banks in which an account can be opened) with which they manage their money.
According to the U.S. tax code, a provident fund under personal management is not an IRA account.
Advantages of personally managed provident and training funds
- Adjustment to the client’s needs: the ability to personally determine the investment mix of the account’s funds, independently of other members, while taking into account the personal needs of each client. A broad view of all the member’s financial assets allows the risk level to be adjusted to the goals of provident and training fund investment.
- The advanced monetary management platforms of Israel’s biggest stock exchange members – banks and investment houses. This broad range allows the client to choose the most suitable stock exchange members based on the trade system and a mix of preferred service charges.
- The taxation advantage: in the past, an investor interested in conducting their investments by themselves would have to pull all their funds from the provident fund and open a securities account in a bank or a stock exchange member. Nowadays, they can invest their funds in the provident fund and continue to enjoy taxation benefits.
Funds that can be managed via an IRA
- Up to 5.3 million shekels in a training fund.
- Liquid funds in provident funds, e.g., compensation funds that underwent tax settling, inherited funds that moved to a new account, liquid funds that were deposited independently into the provident fund, etc.
- Pension savings (if you have a minimal stipend or savings with more than 1.3 million shekels).
- Money in provident funds under Amendment 190.
Is IRA management suitable for every investor?
Personally managed savings is suitable for many people, but not for everyone. Managing the account this way is suitable for people who understand the financial market and are aware of its risks. However, investors don’t need to be investment experts – nowadays, there are investment instruments that track the indexes, and a person can create high-quality investment portfolios even without knowing all the various stocks and companies.
Another option is to assign a personal portfolio manager to personally adjusted funds management and separating it from provident and training fund management at the standard channels.
Which assets can be invested in?
The client can only invest in personally managed provident and training funds with tradable securities (bonds and stocks), deposits, exchange-traded notes, and mutual investment funds abroad (only from OECD members or countries that are ranked BBB- and up). They cannot conduct options aside from buying options that are up to 5% of the fund assets. Investment in a specific corporation’s marketable securities cannot exceed 10% of the account assets’ value (aside from exchange traded notes, foreign funds, deposits in banks, and country bonds). The funds cannot be invested in a (tradable/nontradable) structured product.