Tax wrappers elsewhere: The same idea everywhere, under other names

Every country has its savings boxes. The names change, the idea stays the same.

A state gives you a tax gift. In exchange, you accept a rule: a ceiling, a time limit, or both.

In the United States, the best known is called the four oh one k. Your employer opens it for you.

You pay in part of your salary before tax. And often, the employer adds some.

Say a salary of fifty thousand dollars. You pay in six per cent: three thousand dollars.

The employer adds half: one thousand five hundred dollars. A fifty per cent return, on day one.

No investment in the world does that. Not taking this match means turning down part of your salary.

Alongside it, the IRA: the same idea, but opened by you, with no employer.

It comes in two versions. And those two versions sum up every wrapper in the world.

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The traditional one: you pay no tax when paying in. You pay it when you withdraw.

The Roth: you pay the tax right away. And after that, nothing more, even on the gains.

In the United Kingdom, the ISA: twenty thousand pounds a year, and never any tax again on what grows inside.

No lock-in, no tax return. It is the simplest wrapper in the world.

In Canada, the pair is called the RRSP and the TFSA.

The RRSP deducts on the way in and taxes on the way out. The TFSA does the opposite: nothing in, nothing out.

In Germany, the Riester and the Rürup. The state adds bonuses, but the fees and the rules are heavy.

All these names fall into two families. The advantage on the way in, or the advantage on the way out.

Take one thousand euros, a thirty per cent tax, and an investment that doubles in ten years.

Advantage on the way in: one thousand invested, two thousand at the end, tax on the way out. One thousand four hundred left.

Advantage on the way out: tax first, seven hundred invested, one thousand four hundred at the end. No tax.

One thousand four hundred on both sides. At an equal rate, the two families are worth exactly the same.

What makes the difference is your tax rate today, compared with your rate in retirement.

You earn little today? Pay now. You earn a lot? Deduct now.

And if you move country, look into it before you leave. A wrapper almost never travels well.