plonkee money an english-er's thoughts on personal finance

March 6, 2007

comparison of US and UK investment concepts

Filed under: investment — Tags: , , , , , — plonkee @ 12:06 pm

401(k) / 403(b) = defined contribution (dc) pension

A 401(k) or 403(b) is basically the same as a defined contribution or money purchase pension offered by an employer. In both cases, if you contribute, typically your employer will also contribute – this is typically referred to as an employer match. Also in both cases there is often a restricted list of funds that you can invest your money in. The main differences in the pension rules set by the respective governments are about how much money can be invested free of tax, when you may withdraw the money and what you must do with it afterwards. Any money you put in these products is invested with pre-tax income and taxable when withdrawn.

tax deductible traditional IRA = personal or stakeholder pension

A tax deductible traditional IRA is basically the same as a personal pension (including stakeholder pensions). In both cases you can invest money with a huge range of providers in a wide variety of funds. There are large differences in the rules about how much money may be invested – personal pensions have significantly more generous rules than IRAs – which is probably why IRAs are not as often recommended as stakeholder pensions are. Any money you put in these products is invested with pre-tax income and taxable when withdrawn.

roth IRA = stocks and shares ISA


Roth IRAs and Stocks and Shares ISAs are similar investments but there are significant differences in the rules in each scheme. In each case, money is invested from taxed income and grows and can be withdrawn tax-free. There is a limit to how much money can be invested each year of several thousand pounds/dollars. In both cases you can invest money with a huge range of providers in a wide variety of funds. The major difference between the two schemes is that money may be withdrawn tax-free from an ISA at any time whereas a Roth IRA has restrictions on tax-free withdrawals.

mini cash ISA


There doesn’t seem to be a comparable investment product to a mini cash ISA which are tax-free savings accounts. I believe the most similar investment would be a Roth IRA invested in a money market account.

S&P 500 = FTSE All-Share

These are the same in the sense that they are stock market indices which track the vast majority of company shares in the respective countries.

Securities and Exchanges Commission (SEC) = Financial Services Authority (FSA)

These are the regulatory bodies for investing in the respective countries. There are differences in the exact areas of finance that they cover.

mutual fund = unit trust or open ended investment company (OEIC)

These are open ended entities into which you may invest. In each case they pool the money of all the investors and use it to buy into other investment products such as shares and bonds.

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