Roth IRA: is there an equivalent in Belgium?

What is a Roth IRA?

A Roth IRA is a retirement investment account for Americans that comes with tax benefits. Ever year, they can contribute up to $6,500 to the account. The contributions must come from post-tax income, meaning they can't deduct them from their taxes. The main benefits of the Roth IRA are that the contributions grow tax-free, and they can also withdraw them tax-free after the age of 59½.

The contributions to a Roth IRA aren't just sitting on a savings account: they are put to work through investing. A variety of investment options exist, including mutual funds, stocks, bonds, exchange-traded funds (ETFs), and even cryptocurrency.

Because the contributions are taxed today rather than when withdrawing, Roth IRAs are best suited when their income tax will be higher during retirement than they are now. This means they're interesting mostly for young people, when they are starting their career and their income is still relatively low compared to what they could be earning later in their life.

The Roth IRA sounds a great system for Americans to secure their financial future. But is there an equivalent in Belgium?

Does Belgium have a Roth IRA?

Unfortunately, Belgium does not have a Roth IRA. But there's a Belgian alternative!

The Belgian equivalent: investing in accumulating stock ETFs

The Belgian pension system is different than in the US. There's no direct equivalent to the Roth IRA. But due to the way investments are taxed in Belgium, you can come close to a Roth IRA by investing in accumulating stocks ETFs, meaning funds that invest in stocks of companies.

Let's unpack this. First, most companies distribute a dividend to their shareholders, usually every quarter. This is a way for them to share the profits of the company. The same happens for an ETF that invests in many stocks. As an investor in the ETF, you earn a portion of the dividends issued by the different companies in the fund. But Belgium taxes dividends at 30%. Accumulating funds are a way around this: they directly reinvest the dividends into the fund. You never actually perceive the dividend, so you don't have to pay the dividend tax. This means that just like with the Roth IRA, you don't have to pay any taxes as the investments are growing.

Note that you don't lose the dividend with an accumulating fund. It is simply reinvested in the fund. An accumulating fund will grow faster than a similar fund that distributes all dividends.

Secondly, the investment should be in stocks because they are exempt from a tax on the profits. This is different for bonds, where the Belgian state will take 30% of any profit you make when selling.

You also don't need to declare income from investments to the Belgian taxman as long as they are considered "normal". This is a vague definition and open to the interpretation of the taxman, but roughly it means that any investment that is not speculative is exempt. Generally, investments that you've held for longer periods of time, like you would with a Roth IRA, are considered "normal" investments. Always discuss with a tax advisor though if you are unsure!

These two last points means that withdrawals are also tax-exempt!

This may all sound complicated if you're not familiar with the Belgian system for taxing investments. In that case, you can learn more on the topic through our guide on taxes for investing in Belgium.

Comparing the Roth IRA and investing in accumulating stock ETFs

Through accumulating stock ETFs, we found a way to mimic the Roth IRA in Belgium. Let's first look at the similarities between the two:

• Contributions must come from post-tax income.
• There is no taxation while the investments are growing, as accumulating funds are exempt from the dividend tax.
• There is no taxation at withdrawal, because stock ETFs are exempt from tax on capital gains and you don't have to declare them as income when you sell them.

But an investment in accumulating stock ETFs is not a perfect equivalent of the Roth IRA:

• The Belgian state levies a tax for every purchase or sale of an ETF. This is the Belgian transaction tax, and varies between 0.12% and 1.32% of the transaction amount, depending on the characteristics of the ETF.
• You have more freedom with a Roth IRA regarding how the money is invested. You can invest in stock ETFs, but also bonds, individual stocks, or even cryptocurrencies.
• Contributions to a Roth IRA are limited to $6,500 per year. No such limitation exists when investing in accumulating stock ETFs in Belgium.

The table below summarises the comparison:

You may ask yourself if stock ETFs are a good investment. At Curvo, we actually believe they are the best type of investment for most Belgians to grow their wealth and secure their financial future, as the savings account is no longer sufficient. We are especially fond of index ETFs (also called trackers), which track an underlying index and are a form of passive investing.

Why index ETFs are a great way to grow your savings

Index investing, also called passive investing, is a tried and tested method for growing your wealth. It’s based on the observation that rather than picking individual stocks and trying to buy and sell at the right time, it’s usually more profitable to invest in the stock market as a whole. Instead of finding the needle in the haystack, you buy the entire haystack.

When index investing, you invest in a type of fund called an index fund or ETF. Each index fund tracks a specific index, which is a collection of stocks with strict rules on which stocks are included and how much of each company the index contains. An index fund invests in the companies dictated by the rules of the index.

The most famous index is the S&P 500, which contains the 500 biggest American companies. Large companies such as Apple, Google or Amazon are represented in the S&P 500. The main Belgian index is the BEL 20, which consists of the 20 largest companies in the country.

Ever since the first index fund was created in 1976, index investing has proven to be a great way to invest. By effectively becoming part owner of thousands of stocks across the world, index investing lets anyone earn a dividend off of the growth of the world economy.

The graph below shows the growth of the S&P 500 index since 1992. A €10,000 investment in 1992 would have resulted in over €200,000 by the start of 2023, or an average 10.3% return per year!

There are many other reasons why we think index investing is the best way for most people Belgians to grow their savings:

• Low-cost: index funds and ETFs are cheap to manage, and fund providers pass on these savings to their investors.
• Diversified: one of the goals of index investing is to diversify as much as possible, across many sectors and countries. Some funds invest in thousands of companies!
• Rooted in the real economy: unlike for example cryptocurrencies, stocks are backed by real companies, with real factories, employees, intellectual property, and so on.
• You can buy and sell whenever you want: you can buy or sell any ETF within minutes.
• You can start investing with low amounts: you can even invest with as little as €50.
• It's tax-efficient for Belgians: as we saw, accumulating stock ETFs have almost the same tax advantages as a Roth IRA.
• It works: long-term index investing has delivered great returns to investors for the past 50 years.

We suggest you read through our guide for index investing in Belgium if you wish to learn more on the topic.

Curvo: the easiest way

There are two common ways in Belgium to do index investing:

1. Through a broker. A broker is a middleman that gives you access to the stock markets and allows you to buy and sell ETFs. It gives you the most flexibility because you're in control of what you buy. But it also means you're fully responsible for the management of your investments.
2. Through an app like Curvo. The goal of Curvo is to address the challenges of managing your own investments through a broker. Curvo provides access to the portfolios of NNEK, a Dutch investment firm licensed by the Dutch regulator (AFM). All the work is done for you so you don't have to worry.

The difficulties of investing through a broker

Managing your own portfolio of index ETFs through a broker can be challenging. You need to choose the indices, build your portfolio as the right mix of indices that suit you and your goals, and choose the ETFs that track these indices. For each step, there are thousands of options. But that's not all. Understanding the Belgian tax system is also important, as well as learning how to use your broker, or knowing when to rebalance your portfolio.

You may not have the time, motivation, or simply interest in finance to climb over the learning curve. Or you'd rather spend time on things more important to you than the management of your investments.

We created Curvo to address the challenges of investing through a broker. We started investing through a broker ourselves. Our founder Yoran spent hours researching and figuring out how to build an optimal portfolio to prepare for his financial future. He read books, scoured the web and got lost on Reddit. Finding the right resources was challenging. From this experience, he realised why none of his friends were setting up their own investments through a broker: it's too complicated. At the same time, we've seen that index investing is such a powerful tool to grow our wealth. So it made sense to build something to solve this problem. Enter Curvo.

The work is done for you

Our goal is to make good investing as easy as possible and accessible to everyone.

Diversified portfolio built for you

We understand that it's hard to build the portfolio of index funds that's right for you, so creating an account starts with answering a questionnaire on your investment goals and your appetite for risk. You’ll then be assigned the best portfolio of index funds that matches your goals and risk tolerance. Each portfolio is built and managed by NNEK, a Dutch investment firm licensed by the Dutch regulator (AFM). They're all globally diversified and invest in over 7,500 companies.

Tax-optimised

Each portfolio consists of only accumulating index funds of stocks and bonds and is tax-optimised for Belgians. This way, no dividend tax has to be paid. Also, the funds were chosen so that they're exempt from the Belgian transaction tax!

Sustainability at the core

Your investments focus on one guiding principle: don't invest in companies that are considered destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are excluded from the portfolios.

Built for monthly investing

You can set up a monthly savings plan where your selected amount is automatically debited from your bank account and invested in your portfolio at the start of each month. This way, it's easy to adopt the best saving habits. Also, no transaction fees are charged. Lastly, your investments with NNEK, through the Curvo application, support fractional shares meaning all your money is invested. So it's ideal for monthly investing.

No learning curve

Our goal is to solve all the complexities of index investing through a broker. This means you don't have to worry about:

• Understanding the Belgian tax system. The portfolios are already tax-optimised.
• Choosing a broker. There are many options available and it can be hard to pick the one that you feel most comfortable with.
• Rebalancing. It is made sure that your portfolio is kept in balance.
• Calculating and executing your orders every month. It's all set up for you.
• Keeping discipline. We help you stay the course!

Learn more about how Curvo works.

Summary

We saw that there is no direct equivalent of the Roth IRA investment retirement account in Belgium. But there is a way to achieve similar tax benefits: investing in accumulating stock ETFs. There are two ways of doing so in Belgium. You have the most flexibility when managing your own investments through a broker, but it also has the steepest learning curve. We built Curvo as the easiest way for any Belgian to start index investing.

What you should do now

1. Find out how you wish to invest your savings to secure your financial future. Have a look at our list of best investment apps to see all the various ways you can invest in Belgium!
2. If you think index investing is suited for you, you have to choose if you want to go "do-it-yourself" with a broker, or use an app like Curvo where all the work is done for you. Feel free to use our comparison to help you decide.
3. Our resources can help you on your way if you want to manage your own investments through a broker.
4. Otherwise, we suggest you learn more about Curvo and see if there's a fit!

Questions you may have

Are stocks taxed in Belgium?

Yes 😥. There are three types of taxes relevant to investing in stocks in Belgium:

• The transaction tax, which you pay every time you purchase or sell a stock on a stock exchange.
• The tax on dividends.
• The tax on investment accounts over €1,000,000 (we hope this is applicable to you!)

On the bright side, there is no tax on capital gains. Belgium is one of the few countries in Europe that doesn't tax profits! Also, you do not have to declare income from investments as long as they are not speculative assets.

Learn more about the taxes related to investing in Belgium.

Where can I invest my money in Belgium?

There are many ways to invest your money in Belgium. We think index investing, or investing in index funds or ETFs, is the best way for most people to grow their wealth. But if you're looking for other options, look at our list of investment apps in Belgium.

Does Belgium have a 401(k)?

You may have also read about the other US-centric retirement plan, the 401(k). A 401(k) is typically offered by an employer, while a Roth IRA can be opened by any individual, outside of their employment. Belgium does not have a direct 401(k), but we've looked at the Belgian alternatives if you wish to learn more on the topic.