The new Individual Investment Account for Minors (A.E.L.A.), set out in a tax bill from the Ministry of National Economy and Finance, changes how parents can save for their children. For every euro the family deposits, the state contributes another, up to €1,200 a year. This cap increases by 10% every five years.
Most importantly, parents do not need to take on investment risk. If they do not choose an investment profile, the money is automatically invested in a conservative product with guaranteed capital. Both the family’s contributions and the state’s contribution are guaranteed, while annual costs are capped at 0.50%.
A simple example: A parent opens an account for their newborn and deposits €100 a month. Over 18 years, they will have paid in €21,600, and the state will have contributed another €21,600. The child will therefore have at least €43,200 on reaching adulthood, even if the markets generate no returns. At a conservative annual return of 2%, the amount rises to about €49,500. Even with monthly deposits of €50, the guaranteed capital reaches €21,600.
Grandparents and godparents can also pay into the account, up to a combined €10,000 a year, without gift tax. Interest, dividends and capital gains are tax-free, and the amounts are excluded from tax presumptions. The funds are locked until the child turns 18 and cannot be seized.
The account must be opened before the child turns two. Those seeking higher potential returns can choose a balanced, growth or dynamic profile, accepting that higher potential returns come with higher risk.
If you want to calculate your own example and put together a savings plan for your baby, click here.