In the United Kingdom, the equivalent of a Roth IRA is called an ISA (Individual Savings Account). Similar to a Roth IRA in the US, a Stocks and Shares ISA allows individuals to invest their income or compensation into a variety of investments, with the returns from those investments being tax-free. There are annual limits on how much a person can contribute to an ISA, but the contributions themselves are not taxed.
Is an ISA like a Roth IRA?
Unlike the roth ira uk version in the US, UK residents can withdraw their investments without being penalized. This is due to the fact that the US-UK double tax treaty does not include a clause requiring U.S. citizens to pay taxes on their withdrawals unless they live in the country that the investment originated in.
Another difference between a Roth IRA in the US and a SIPP is that UK residents can access their funds earlier than US citizens can. This is because the age limit for a Roth IRA is 59 and a half, while UK residents can withdraw their investments from their SIPP accounts at the age of 55.
Whether a Roth IRA or a SIPP is the best option for a saver depends on the individual’s tax situation and future retirement plans. Generally speaking, anyone who thinks they will be in a higher tax bracket later in life should choose a Roth. Young people in their 20s and early 30s are one such group.