401(k)s vs CPF

401(k)s vs CPF: Understanding the Differences and Equivalents

The United States 401(k) and Singapore’s (CPF) Central Provident Fund are retirement saving systems from the government. While both systems are designed to help you save for retirement, they differ in contributions, structure, and withdrawals. 

A Singapore resident can benefit from a CPF account by using it to fund their medical needs, home purchases, insurance protection, and retirement income. 

A US resident, on the other hand, only benefits from tax savings from their 401(k). To understand their similarities and differences, let’s dive deeply into 401(k)s and CPF.

401(k)s Vs CPF

The key difference between the 401(k) and CPF accounts is their availability in different countries. Other differences between the plans, such as contribution limits, investment options, and withdrawal ages.

At a Glance

Features 401(k) CPF Accounts
Availability United States Singapore
Employer Contributions Employer-match contributions 17%
Employee contribution Voluntary 20%
Contribution limit (2023) $22,500, or $30,000 if you’re 50 or older S$102,000
Investment Option Company stock, individual stock, bonds, and variable annuities. Singapore government bonds (SGBs), Treasury Bills (T-bills), Exchange Traded Funds (ETFs), unit trusts, endowment policies, annuities, and investment-linked insurance products, among others.
Withdrawals Can start withdrawing from 59.5 years Can start withdrawing from 55 years
Taxation Enjoy tax benefits on all withdrawals. Tax deductible up to S$ 14,000



What Is It?

A 401(k) plan is a retirement savings plan where employees contribute their income, and their employer matches their contributions for the retirement funds, according to Internal Revenue Service. It offers many US residents tax benefits, and the employee gets to choose their investment option for their funds, usually mutual funds.

How the Scheme Works

The 401(k) plan is designed to encourage United States Residents to save for retirement. One of its main benefits is the tax savings it offers. The plan offers two main options: the Roth 401(k) and the traditional 401(K).

  • Traditional 401(K)

The traditional 401(K) contributions are deducted from the employees’ incomes. This means the contributions are taken directly from your paycheck before taxes. Your taxable income reduces and can be reported as tax reduction during the respective tax year. No taxes are due on the money contributed or the investment earnings until you withdraw the money during retirement.

  • Roth 401(K)

The contributions of the Roth 401(K) are deducted after tax. This means that your contribution comes after you pay your taxes, and there is no tax reduction on the year of contributions. However, you will not need to pay taxes when withdrawing your money after retirement.

It is important to note that even though the Roth 401(K) is made after tax, making withdrawals before age 59.5 may trigger substantial tax consequences. Check with a qualified financial advisor or accountant before withdrawing money from your traditional or Roth 401 (K).

Also, note that not all employers will offer a Roth account. However, if the Roth is offered, you can choose between contributing to the Roth or traditional 401(K).

Contribution & Allocation

The 401(K) has a defined contribution plan. The employer and employee can contribute to the account to a limit set by the IRS (Internal Revenue Service). 

A defined contribution plan means the employer is committed to providing the employee with a specific amount for life throughout their retirement. This is an alternative to the traditional pension structure, where you are paid a lump sum once you retire.

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Sample Scenario

Suppose John is 30 years old and works for a company that offers a 401(k) retirement plan. The plan allows him to contribute a maximum of $19,500 per year, and his employer matches 50% of his contribution up to 6% of his salary.

John decides to contribute 10% of his $75,000 salary to his 401(k) account, which is $7,500 per year. His employer matches 50% of his contribution, which is $3,750 per year.

Here’s how John’s 401(k) account balance grows over time based on his contributions and employer match:

Year John’s Contribution Employer Match Total Contribution Account Balance (Assuming 6% Annual Return)
1 $7,500 $3,750 $11,250 $11,925
2 $7,500 $3,750 $11,250 $25,233
3 $7,500 $3,750 $11,250 $40,110
4 $7,500 $3,750 $11,250 $56,706
5 $7,500 $3,750 $11,250 $75,191
10 $7,500 $3,750 $11,250 $167,755
20 $7,500 $3,750 $11,250 $536,453
30 $7,500 $3,750 $11,250 $1,565,236


As you can see, John’s account balance grows over time due to his contributions, employer match, and investment returns. At the end of 30 years, assuming a 6% annual return, his account balance is projected to be over $1.5 million.

It’s important to note that the actual return on investment may vary based on market conditions and investment choices. However, the 401(k) retirement plan provides a tax-advantaged way to save for retirement and benefit from employer contributions.

Accounts and Uses

Your 401(k) contributions are invested according to your preference from what your employer offers. These options typically include bond mutual funds, target-date funds, and an assortment of stocks designed to reduce your investment risk as you get closer to retirement age.

Different factors, including how much you contribute, whether your company matches your investment, your investment choices, and their returns, and not forgetting the number of years you have until your retirement, will determine how much you will get out of your contribution.

Interest Rates

A typical 401(k) plan generates an annual return of 5% to 8% based on the current market condition. However, it is essential to note that the different factors, such as investment selection, contribution, and fees, contribute towards 401(K) returns.


Once you make your contribution towards the 401(K), it will be hard to withdraw from your account without paying taxes. Professional financial advisors will advise you always to have enough money saved in case of emergencies and any expenses that may arise before retirement. Please do not put all your savings in a 401(K) since you cannot access it when necessary.

The Roth and traditional 401(k) must be 59 ½ years old to withdraw from their accounts. If not, you have to meet other criteria spelled out by the IRS, such as being permanently disabled, to start making withdrawals without any penalties.


What Is It?

Singapore’s Central Provident Fund (CPF) is a compulsory social security savings scheme funded by employees and employers. It is an essential pillar of Singapore’s social security system. It serves to meet housing, healthcare, and retirement needs. The Singaporean government also helps supplement the CPF savings of low-wage workers through various systems such as Workfare.

How the Scheme Works

Central Provident Fund Board (CPFB) states that CPF contributions fall under any of the following accounts:

  • Ordinary Account (OA)

An ordinary savings account can be used to purchase investments, among other approved purchases. A high OA contribution at the beginning of your working life allows you to purchase your first homes easily.

The most common use of the OA account in Singapore is for housing—the ordinary account purchases private housing and HBD housing, subject to prevailing rules. There are different rules when you use your OA fund to buy a public flat and private property. It is, however, essential to note that the money used to buy the properties much be paid to your CPF account once you sell the property.

The OA account also pays premiums for the DPS (Dependents Protection Scheme), a very affordable life insurance plan offering CPF members essential life protection. CPF members can also use the OA to pay for their tuition fees for an approved course. However, the student must pay the amount after one year of graduation. The student may apply for a waiver if the qualifying payment conditions are unmet.

Finally, the OA can be used for investing in various CPFB-approved financial products. The central provident fund board does not approve these investments, and a member can make losses from the investments. Therefore, it is essential to always do your due diligence before investing.

  • Special Account (SA)

A special account is dedicated to any retirement expenses that you might have. It can be used for investment in any retirement financial products.

Money for the special account can only be invested in a narrow range of financial products such as Singapore government bonds, unit trusts, investment-linked policies, treasury bills, endowment policies, and many others. The funds are meant for lower-risk investments.

Besides investing in a low-risk investment, there isn’t much you can do with your special account other than topping it up with money from your ordinary account. It, however, is essential to note that this move is irrevocable and irreversible.

  • Medisave Account (MA)

A Medisave account allows you to meet your hospitalization or immediate family needs. The contributions for this account tend to increase as you get older since medical care tends to increase with age.

The MA account is the Medisheild Life account, a national health insurance scheme. It provided many benefits, like covering medical procedures, hospitalization fees, day surgeries, and certain outpatient expenses.

Medisheild Life premiums can be paid fully from your Medisace account. On top of that, any deductible, co-insurance, or leftover amount on the hospital bill can be paid from the MA account.

  • Retirement Account

Once you reach 55, you will get your RA. This is the account that will be used for your CPF Life Payouts. This lifelong scheme is designed to help its members meet their expenses during their old age.

It is created from the funds you have in your OA and SA. The funds will continue to accrue RA interest until you reach 65 when you receive the monthly payouts.

Contribution & Allocation 

The CPF scheme requires employees earning more than S$500 per month to contribute a portion of their salary to their CPF account. However, individuals working overseas are exempt from making CPF contributions. It’s important to note that other forms of payment, such as commissions, cash incentives, and bonuses, are also subject to CPF contributions.

Employer contributions to the employee’s CPF account match the employee’s contributions. The employer’s contribution rate varies depending on the age of the employee.

Here are the current CPF contribution rates as of 2023:

Age of Employee Contribution Rates by Employee (% of Wages) Contribution Rates by Employer (% of Wages) Total Contribution as % of Wages
55 and below 20 17 37
Above 55 to 60 15 14.5 29.5
Above 60 to 65 9.5 11 20.5
Above 65 7 8.5 15.5
Above 70 5 7.5 12.5


Sample Scenario

To illustrate how the contributions work, let’s take a look at Sarah’s. Sarah is a 28-year-old marketing executive at a multinational company in Singapore. She earns a gross salary of S$5,000 per month. Since she is below the age of 55, her employer is required to contribute to her CPF account.

  • Sarah’s take-home pay: 80% of gross salary = 80% x S$5,000 = S$4,000
  • Sarah’s CPF contribution: 20% of gross salary = 20% x S$5,000 = S$1,000
  • Employer’s CPF contribution: 17% of gross salary = 17% x S$5,000 = S$850
  • Total contribution to Sarah’s CPF account = S$1,850

Even though Sarah only contributes 20% of her gross salary to her CPF account, the amount contributed to her account exceeds that amount. That’s because her employer is required to contribute an additional 17% of her gross salary toward her CPF account. This helps Sarah save more for her retirement, healthcare, and housing needs and build a stronger financial foundation for her future.

Accounts & Uses

CPF members begin with three accounts: the Ordinary Account (OA), Special Account (SA), and Medisave Account (MA), and a fourth account, the Retirement Account, is added when they turn 55. 

Now, let’s focus on Mary’s allocation rate. Her monthly CPF contribution of S$1,850 is divided among her three accounts – the OA, SA, and MA – based on specific allocation rates. The allocation rates vary depending on her age and are applied as a percentage of her gross salary.

Account Allocation Rate (as a percentage of gross salary) Monthly Contribution
Ordinary Account (OA) 23%xS$5,000 S$1,150
Special Account (SA) 6%xS$5,000 S$300
Medisave Account (MA) 8%xS$5,000 S$400
Total S$1,850


The CPF allocation rates are based on a percentage of your gross salary, as an example in Sara’s case, it’s S$5,000. These rates change based on age, with a view to enabling members to meet different financial requirements at different stages of life.

For instance, younger members receive a larger percentage of their contributions allocated to the OA account to support their first home purchase. As members enter their mid-thirties to mid-fifties, a larger allocation is made to their SA to prepare for retirement and potential healthcare costs.

Between 55 to 65 years old, employees witness a shift in contribution rates along with their employers. Finally, those above 65 years old receive the bulk of their contributions allocated to their MA to meet their healthcare needs.

couple senior and gold coin money in the bag

Here’s your reference for the CPF allocation rates with different age groups.

Age Group Allocation Rate for OA (%) Allocation Rate for SA (%) Allocation Rate for MA (%)
Under 35 23 6 8
35-45 21 7 9
45-50 19 8 10
50-55 15 11.5 10.5
55-60 12 3.5 10.5
60-65 3.5 2.5 10.5
Above 65 1 1 10.5


Interest Rates

Each CPF account – the Ordinary Account (OA), Special Account (SA), Medisave Account (MA), and Retirement Account (RA) – earns interest at different rates, which may vary based on factors like the account balance and prevailing market conditions. The current interest rates for CPF accounts are:

Account Interest Rate (per annum)
OA Up to 3.5%
SA Up to 5%
MA Up to 5%
RA Up to 6%


The CPF interest rates for the different accounts may vary based on factors like account balance and market conditions. The interest rates for the SA, MA, and RA accounts are adjusted quarterly, while the OA interest rate is reviewed quarterly and set at a minimum of 2.5%. The interest rate for RA accounts is reviewed annually and is based on factors such as the 12-month average yield of 10-year Singapore Government Securities plus 1%.


The CPF board has set strict withdrawal rules for participants who want to withdraw their CPF contributions. Members can only withdraw up to 50% of their savings at 55 and the total upon retirement at 65.

Besides using the CPF withdrawal option, members can choose the alternative CPF life. The Singapore CPF board created CPF Lifelong Income for the Elderly (CPF Life) as a national longevity annuity scheme that guarantees lifelong payments to participants as long as they are alive. This way, elderly people can cater to their expenses even after retirement.

CPF Life is for people born in 1958 and after who must be Singapore citizens or permanent residents and have a balance of S$60,000 for their payout.


Retirement plans are designed to make your life after retirement comfortable. The CPF differs from 401(k) plans because it can be used for other purposes such as healthcare funding, education, and home buying. The CPF and 401(k)s also have different contribution structures and withdrawal restrictions.

Key Takeaways

  • 401(k)s are voluntary for US citizens, while the CPF is mandatory for Singapore citizens and permanent residents.
  • The Central Provident Fund (CPF) is a mandatory provident fund that caters to other purposes such as healthcare, education, and housing.
  • The 401(k)s are retirement plans in the United States where employees and employers contribute towards the retirement of the employees.

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