Ever since traveling to England during their pension riots back in November, I’ve been somewhat curious about the options that other countries offer for retirement savings. I know we talk an awful lot on here about plans that are available in the U.S. like IRA’s, 401k’s, etc. So today we’re going to jump across the pond and take a look at what folks in England have to supplement their retirement savings. In particular, we’re going to talk about the ISA or Individual Savings Account.
An ISA is very similar to Roth IRA here in the U.S. You fund (or “subscribe”) money to the account with post-tax sources, the money grows tax free, and no taxes are paid at the time of withdrawal. However unlike American IRA’s, there are no limits or restrictions as to when or how much money can be taken out.
There are basically two types of accounts:
Cash ISA:
A Cash ISA is a British tax free savings account that is held in … cash! Think of it just like a regular savings account, only the interest you accumulate is tax is not taxed. And good thing – government taxes can be anywhere from 20% to 50% on the interest you earn. Anyone age 16 and over can invest in a Cash ISA. There is also an option for children to join in a Junior ISA.
Stocks and Shares ISA:
The Stocks and Shares ISA is what you and I (in the U.S.) would think of more like an IRA or 401k. It contains share-based investments and shares in individual companies. These investments may be in what’s called a self-select ISA (which are usually managed by stockbrokers) or collectively in pooled investment vehicles like unit or investment trusts. Anyone age 18 and over can invest in a Stocks and Shares ISA.
How Much Can I Put in an ISA?
Unlike an IRA, there are certain limits on how much money you can put into each type of ISA.
A) You could invest it all in the Stocks & Shares
B) You can combine your investments over the two types of accounts, but you can’t put more than half the amount in the Cash ISA
Here is a summary of the 2012-2013 ISA limits:
In addition to deciding on which type of ISA to fund, another important consideration to make in reducing your tax burden is to see if offshore tax planning fits into your situation. After speaking with a consultant, you possibly may find it beneficial to live abroad temporarily.
Related Posts:
1) How Much Do Things Cost in England?
2) How to Retire on 500K with the Greatest Potential
3) Six Easy Steps to Figuring Out Your Retirement
4) How to Pick Good Mutual Funds for Your 401k or Retirement Plan
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That is interesting that they have a cash only version. It seems like a waste since that money will just lose value to inflation. I suspect the interest is rather low anyway. Here in Canada many people assume our TFSA (tax free savings accounts) work that way, but they can actually hold stocks and other investments.
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Actually the research I did showed cash accounts paying between 5 and 7%. When was the last time you saw that advertised on Ally or ING? The beauty is that you can withdraw the money anytime, so you don’t really even have to treat it like a retirement account if you don’t want. And those deposit limits aren’t too bad either!
With talk of a wealth tax , one has to wonder if investing in retirement is even worth the risk of confiscation going forward.
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Investing in retirement is a much better plan than nothing at all. One thing you can always count on is that the rich will always find a loophole or way to protect their money.