If you’re in the UK and wondering whether there’s an equivalent to the US Roth IRA, you’re not alone.
While the Roth IRA is a popular retirement savings vehicle in the United States, it’s not available in the UK.
However, the UK offers similar tax-advantaged accounts that can help you build wealth efficiently: the Stocks & Shares ISA and the Self-Invested Personal Pension (SIPP).
In this article, we’ll explore these UK alternatives, compare them to the Roth IRA, and help you decide which might be the best fit for your financial goals.
What Is a Roth IRA?
A Roth Individual Retirement Account (IRA) is a US-based retirement savings account that allows individuals to contribute after-tax dollars, with investments growing tax-free. Qualified withdrawals during retirement are also tax-free, making it an attractive option for long-term savings.
Key Features of Roth IRA:
- Tax-Free Growth: Investments grow without being taxed.
- Tax-Free Withdrawals: Qualified withdrawals after age 59½ are tax-free.
- Contribution Limits: Up to $7,000 annually for those over 50 (2024 limits).
- Withdrawal Flexibility: Contributions can be withdrawn anytime without penalties.
Why Is Roth IRA Not Available in the UK?
The Roth IRA is specific to the US tax system and is only available to US taxpayers. UK residents cannot open or contribute to a Roth IRA. However, the UK offers its own tax-advantaged accounts that serve similar purposes.
Top Roth IRA Equivalents in the UK
1. Stocks & Shares ISA
A Stocks & Shares Individual Savings Account (ISA) is a tax-efficient investment account available to UK residents. Like the Roth IRA, it allows for tax-free growth and tax-free withdrawals.
Key Features:
- Tax-Free Growth and Withdrawals: No tax on income or capital gains.
- Contribution Limits: Up to £20,000 per tax year (2024-2025 limit), across all ISAs.
- Investment Options: Stocks, bonds, mutual funds, ETFs, and more.
- Flexibility: Withdraw funds at any time without penalties.
The Stock & Shares ISA is best for investors wanting tax-efficient growth with the option to withdraw funds whenever needed, as well as those saving for medium to long-term goals, not limited to retirement.
2. Self-Invested Personal Pension (SIPP)
A Self-Invested Personal Pension (SIPP) is a retirement-focused account offering tax advantages, similar to the Roth IRA’s purpose.
Key Features:
- Tax Relief on Contributions: Receive tax relief at your marginal rate.
- Contribution Limits: Up to £60,000 per tax year or 100% of earnings (2024-2025 limit).
- Investment Options: Wide range, including stocks, bonds, funds, and property.
- Withdrawal Age: Access funds from age 55 (rising to 57 by 2028).
- Tax-Free Lump Sum: 25% of your pension pot can be withdrawn tax-free at retirement.
The SIPP is best for individuals focused on building a retirement fund with significant tax advantages, as well as those who won’t need access to these funds until at least age 55 (57 from 2028).
Comparing Roth IRA, Stocks & Shares ISA, and SIPP
| Feature | Roth IRA (US) | Stocks & Shares ISA (UK) | SIPP (UK) |
| Purpose | Retirement savings | Flexible savings and investments | Retirement savings |
| Eligibility | US taxpayers | UK residents aged 18 and over | UK residents; withdrawals from age 55 (57 by 2028) |
| Contribution Limits | Up to $7,000 annually | Up to £20,000 annually (across all ISAs) | Up to £60,000 annually or 100% of earnings |
| Tax on Contributions | Made with after-tax dollars | Made with after-tax income | Contributions receive tax relief |
| Tax on Growth | Tax-free | Tax-free | Tax-free |
| Tax on Withdrawals | Tax-free after age 59½ | Tax-free at any time | 25% tax-free lump sum; remainder taxed as income |
| Withdrawal Age | 59½ for tax-free withdrawals | Any age | From age 55 (57 by 2028) |
| Investment Options | Stocks, bonds, mutual funds, ETFs | Stocks, bonds, mutual funds, ETFs, investment trusts | Wide range, including stocks, bonds, funds, property |
| Withdrawal Flexibility | Penalties for early withdrawal of earnings | Withdraw anytime without penalties | Penalties for early withdrawal before eligible age |
| Required Distributions | No required minimum distributions | No required distributions | No required distributions |
Which Should You Choose: Stocks & Shares ISA or SIPP?
Choose a Stocks & Shares ISA if:
- You want flexibility to access your funds at any time.
- You prefer tax-free growth and withdrawals without age restrictions.
- You’re saving for goals other than just retirement.
Choose a SIPP if:
- You’re focused on maximizing retirement savings.
- You want immediate tax relief on your contributions.
- You’re comfortable locking away your money until retirement age.
Consider Using Both:
- Diversify Your Tax Benefits: Combining both accounts can maximize tax efficiency.
- Flexible Savings Strategy: Use the ISA for medium-term goals and the SIPP for long-term retirement planning.
Best ISA accounts
We believe that the Stocks and Shares ISAs are the ones investors will have a harder time figuring out what provider will be the best option for their needs. Given that, we summarise a list of options:
Online brokers:
Interactive Brokers
Founded in 1978, IBKR is one of the world’s most trustworthy brokers worldwide. It offers a Stocks and Shares ISA with a minimum monthly activity fee is £3 (if you generate a £3 in commission per month, no fee is applicable) and no minimum deposit.
💡 Interactive Brokers also launched IBKR GlobalTrader, a modern mobile trading app to trade Stocks, Options and ETFs, ideal for novice investors.
Freetrade
It is one of the most popular UK-based fintech startups. It is the closest you can get to Robinhood in the US. You do not need to pay any commission to transact stocks and ETFs. You only have a flat fee of £3/month. Read our Freetrade review.
Saxo Bank
Founded in 1992, Saxo Bank is a danish online broker with a high reputation among its peers. Through your Stocks and Shares ISA, you can invest in more than 11,000 stocks, ETFs and bonds. It also has a “Managed Portfolios” feature (similar to a Robo-Advisor).
Trading 212
Commission-free stocks and ETFs trading (+10,000 global stocks and ETFs), 0.15% of foreign exchange fees, and presents fractional shares—over 15 million customers. No fees are applied in their ISA Account (commissions, annual service fee, and dividend reinvestment). New users get one free share of up to €100 by using the code IITW. Read our Trading212 review.
Robo-advisors:
Wealthify
A Robo-Advisor that offers five different investment styles (each with its own level of risk). Wealthify charges 0.60% for its annual service. This fee can go up to around 1.25% for ESG investment portfolios.
InvestEngine
InvestEngine is a UK-based robo-advisor and investment platform focused on ETFs. It is a great solution for buy-and-hold investors looking to only invest in ETFs for the long term. New users get a Welcome Bonus.
Moneyfarm
Another great Robo-advisor to manage your investments in a stress-free wealth management service. The pricing varies according to your investment amount. It goes from 0.35% to 0.75% in case you invest £100.000 or £10.000, respectively.
All the companies here mentioned are regulated and/or registered in the Financial Conduct Authority (FCA) in the UK.
Looking for more ISA brokers and Robo-advisors? Feel free to check our comparison tool, as well as our BrokerMatch tool.
Final thoughts
If you are looking to grow your money tax-efficiently, ISAs will definitely be a good option. The landscape for ISAs might initially be quite complex due to the number of options available. The reality is that once you start digging a little bit, you will realize that it is quite straightforward.
Always pay attention to the fees charged and the services provided (do you really need a platform that allows you to buy from 5,000 stocks? Are you happy with only ETFs?).
Our digital world has democratized the financial industry to such a degree that almost anyone can start to grow their capital, even with little knowledge!
Let us know in the comment section if you have any doubt! 🙂
FAQs
Can UK residents invest in a Roth IRA?
No, Roth IRAs are only available to US taxpayers. UK residents cannot open or contribute to a Roth IRA.
What is the UK equivalent of a Roth IRA?
The closest equivalents are the Stocks & Shares ISA and the Self-Invested Personal Pension (SIPP), both offering tax-efficient ways to save and invest.
Are withdrawals from a Stocks & Shares ISA really tax-free?
Yes, all withdrawals from a Stocks & Shares ISA are tax-free, regardless of the amount or your age.
Can I have both a Stocks & Shares ISA and a SIPP?
Yes, you can contribute to both accounts simultaneously, allowing you to benefit from the flexibility of an ISA and the retirement-focused advantages of a SIPP.
