IRA vs SIPP
The US IRA is a small individual top-up to the workplace 401(k); the UK SIPP is the workhorse retirement wrapper for individuals (£60k annual allowance vs the IRA\'s $7k). Different scales, different roles.
| Feature | IRA (Traditional)United States — Individual Retirement Account | SIPPUnited Kingdom — Self-Invested Personal Pension |
|---|---|---|
Annual contribution limit (2026) | USD $7,000 ($8,000 age 50+) | £60,000 (tapered for high earners) |
Income limits on deduction | Yes — phase-out if covered by workplace plan | No income test, but tapered above £260k adjusted income |
Carry-forward unused allowance | 3 prior years | |
Tax relief on contributions | Deduction at marginal rate (subject to limits) | At marginal rate (20/40/45%) |
Tax on growth | ||
25% tax-free lump sum | Yes — up to £268,275 Lump Sum Allowance | |
Tax on withdrawals | Ordinary income at marginal rate | Income tax on 75%; first 25% tax-free |
Earliest withdrawal age | 59½ (10% penalty before, with exceptions) | 55 (rising to 57 in 2028) |
Required minimum distributions | Yes — from age 73 | |
Investment flexibility | Self-directed — anything broker offers | Self-directed — funds, shares, ETFs, sometimes property |
Recognized under tax treaty | Yes — Canada-US, US-UK | Yes — UK-Canada, US-UK |
Different roles in their respective systems
The IRA is a supplementary individual retirement account in the US system — the heavy lifting happens in the 401(k), which has 3-4× the contribution limit and usually comes with employer match. The IRA fills the gap for people without a 401(k) (self-employed, between jobs) or as a second tier of tax-advantaged saving on top of a 401(k).
The SIPP is the workhorse of UK retirement saving. The £60,000 annual allowance is generous, the carry-forward is useful, and the 25% tax-free lump-sum at retirement is unique to the UK pension system. UK workplace pensions exist (and most employees get auto-enrolled), but the SIPP is where UK savers go for control over investments and to handle the bulk of their retirement saving.
The £60k vs $7k gap
Eight times the annual allowance — the SIPP simply provides more room. A high-earning Brit can shelter £60,000 (or £180k+ with full carry-forward from three prior years) into the SIPP in a single year. A high-earning American is capped at $7,000 for the IRA, so the heavy retirement-saving in the US has to go through the 401(k) (with up to $70k combined employee + employer) or alternatives like the SEP-IRA or Solo 401(k) for self-employed filers.
The IRA's tax-deduction phase-out for high earners with a workplace 401(k) further limits its usefulness — many IRA contributions aren't deductible, so they go in as after-tax money but still grow tax-deferred (then get taxed again on withdrawal as ordinary income, the worst of both worlds). This is why the Backdoor Roth IRA exists: a workaround that converts non-deductible Traditional IRA contributions into Roth IRA dollars.
The 25% tax-free lump-sum is decisive
A £1m SIPP yields £250k completely tax-free at retirement (subject to the Lump Sum Allowance). A $1m IRA is fully taxable at marginal rate as ordinary income on every withdrawal — there is no equivalent.
The Roth IRA does provide tax-free retirement income, but it's a separate wrapper with the same $7k annual limit and is funded with post-tax dollars. There's no IRA equivalent of the SIPP's "deduct now, take 25% tax-free at retirement" trick.
Frequently asked questions
Can I have both an IRA and a SIPP?
Yes if you're subject to both tax systems. A US citizen working in the UK might fund a SIPP for current tax relief and retirement saving, while keeping a legacy IRA in the US. The Canada-US-UK treaties recognize both wrappers; reporting obligations exist on both sides (FBAR / Form 8938 for Americans abroad).
Should I prefer the IRA or SIPP if I'm a US person living in the UK?
Tricky territory. Generally the SIPP because of the larger allowance and 25% lump-sum, but the IRS doesn't recognise the SIPP as tax-free under all circumstances — depending on the form of the SIPP and how you draw it, US tax may apply. PFIC rules can also bite if the SIPP holds non-US mutual funds. Talk to a cross-border CPA before contributing significant amounts.
Can I transfer an IRA to a SIPP if I move from the US to the UK?
Generally no — there's no clean cross-wrapper transfer mechanism. You can leave the IRA in place and continue to grow it tax-deferred, but new contributions usually require US earned income. Once UK-resident, fund the SIPP for new retirement saving.
What about Roth IRA vs SIPP?
Different tax model — Roth IRA is post-tax in / tax-free out; SIPP is pre-tax in / mostly-taxable out (with the 25% tax-free lump sum). The closer UK equivalent of the Roth IRA is the ISA: post-tax, tax-free growth, tax-free withdrawals. See our /isa-vs-tfsa comparison and /tfsa-vs-roth-ira for the closest analogues.
Does WealthWatch handle both?
Yes. Connect your US broker (Fidelity, Schwab, Vanguard, IBKR) for IRA tracking and Hargreaves Lansdown / AJ Bell / Vanguard UK / Interactive Investor for SIPP. The dashboard handles GBP/USD currency conversion and applies the right contribution limits per wrapper.