Claim 21 of 22
401(k), ISA and super: use the tax-advantaged accounts first
Should the tax-advantaged account come first?
Verdict
Holds with conditions
Each country's main account carries a tax treatment that an ordinary account lacks, which is income-tax deferral in the US, tax relief in the UK and a 15 per cent contributions tax against a 30 per cent marginal rate in the Australian example. The advantage depends on the person's tax rate, on fees and on accepting that the money stays in the account until a set age.
The cost, from the book's own figures. Treating the account as the whole decision leaves out the fee, because in the Moneysmart example fees of 2.5 per cent instead of 1 per cent leave A$255,000 at 65 instead of A$336,000, a difference of A$81,000.
Made by: no title confirmed by a description read for this book.
Test it on your own numbers
- United States: IRS 401(k) contribution limits (irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits), to check this year's limit, then ask your plan for its matching formula.
- United Kingdom: What you, your employer and the government pay (gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay) and the MoneyHelper pension calculator (moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pension-calculator), to see what your contribution adds.
- Australia: Moneysmart, choosing a super fund (moneysmart.gov.au/how-super-works/choosing-a-super-fund) and ATO contributions caps (ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps), to compare fees and check this year's cap.
The full test, with every figure dated and sourced, is in chapter 21 of the book.