I was reading an article about United States of America's retirement savings scheme. The article was long and i have limited time, therefore i couldn't finish reading it all. However, from the limited time i gathered from the short read, i understood that the scheme was originally known as 401(k), a name plucked out from the section 401, sub-section (k) of the Federal Inland Revenue Act. It was introduced in 1988 as a defined contribution scheme. Subsequently the government introduced ROTH IRA in 2006, as an improved version of 401(K). Employees have the option to choose either one or both schemes as a retirement scheme to fund their retirement age after the age of 59.1/2 years. ROTH got its name from Senator William Roth of Delaware, the person who have initiated for such scheme.
In both schemes, the contribution are not taxed, however, once the money is withdrawn it will be taxed.
The onus of investment (of the 401(k) or ROTH) fund lies on the part of the employees, and not the provider of the scheme. It means, employees have the choice to choose investment products of their liking.
In Malaysia, the retirement scheme is called Employees Providence Fund (EPF) and it is a defined contribution type. Employees also have the options to choose the pension scheme, which is a define benefit type, however it is only limited to civil servants only. Recently, the EPF board of directors had announced a 6.00% dividend income tax-free to all its account holders active as at December 31, 2011.
In contrast, the 401(K) and ROTH IRA income distribution is not fixed and therefore depending on the investment products performance that they have independently chosen.
My understanding of the 401 and the ROTH is still shallow and i hope some readers out there would be kind enough to spare some time and knowledge to educate me on this issue.
Hoping to hear from you readers. :)
