Comparing the US 401K with the UK ISA




Among the innumerable consequences of the COVID-19 pandemic has been the fact that more people than usual are borrowing money. Indeed, a House of Commons report shows that nearly 9 million people had borrowed more money than usual due to the pandemic and the financial strains it imposed. Though savings rates were at record highs due to decreased spending, many were still unable to stave off financial difficulty.

The economy has turned around in some respects, and the hope is that people are by and large having an easier time. But the struggles of the pandemic have served to emphasise the importance of preparing for unexpected misfortune. People understand better than ever that it is crucial to protect and grow funds in preparation for the future, or for a “rainy day” so to speak.

Comparing The US to The UK

One way of protecting your money is to place it into accounts that offer some great tax-savings benefits. In the US there is the 401k and the IRA, while in the UK there is the SIPP and the ISA.

If you want to learn more about ISAs specifically, this article titled ‘The Many Faces of the Humble ISA’ previously covered the different kinds of ISA accounts.

This article will compare the features of 401(k) plans, IRAs and ISAs, as well as provide tips UK investors can follow to maximise their ISAs.


Both 401(k) plans, IRAs and ISAs are tax-advantaged, meaning the sum you invest can be deducted from your pre-taxed income. This might sound a little confusing, but it isn’t anything a good tax calculator couldn’t handle. With a 401(k) plan, you are taxed when you come to use the money. In the UK, the equivalent would be a work-place pension.

An IRA is an individual retirement account. This can be a “traditional” IRA, or a “Roth” IRA.

A “traditional” IRA is like a 401k. You are taxed when you use the money, not when the money is put into the pension. The difference is that a 401k is sponsored by your employer who will also contribute to your account on your behalf.

A “roth” IRA is slightly different in that you are not taxed when using the money.

A traditional IRA would be like a SIPP (self-invested personal pension) or a LISA (Life-time ISA) in the UK.

A Roth IRA would be like a stocks and shares ISA in the UK.


The “Lifetime” ISA is an account whose funds can only be used for two purposes: buying property or funding retirement. You have to be aged 60 to access the money for retirement, or only for a first time home purchase. If you try to take the money out sooner you’ll be penalised.

Stocks and shares ISAs can be used for any purpose and at any age.

SIPPs can be access fro the age of 55.

401(k) plans and IRAs were designed specifically to help Americans with retirement and you can only access the money from the age of 59.5 and only if you have been contributing for 5 years. There are also rules on when you MUST start using the money. For a 401k it’s age 70.5, and for a traditional IRA it’s currently 72.

Investment Choices

According to CNBC’s guide to choosing 401(k) investments, the primary options for investors are index-linked funds and ETFs. To maximise retirement funds, participants look to “buy and hold” for the long-term and aim to select funds projected to do well over the course of a few decades. They also consider the fees each fund charges to make sure only a minimal amount is deducted from returns.

ETFs and Index Funds can also be purchased within in stocks and shares ISAs, LISAs and SIPPs.

A great book to read is The Simple Path To Wealth by JL Collins. This one goes into specific suggestions for retirement investing, and covers both US and UK.

Final Thoughts

If you’re a UK expat in the US, or a US expat in the UK, it can feel tricky knowing where to start. The best thing to do is to chat to a money coach, or a financial planner who can help you to work out the best thing to do.

There are lots of options out there, and if you can take full advantage of them, you will be doing yourself a great service.

Thank you for reading, and for more finance tips and tricks, check the rest of The Female Money Doctor blog.

Written exclusively for by Joanne Berry

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