Provident Fund

At first glance, a “provident fund” might seem like a fund that can predict the future. And while that would be super awesome and totally useful, it's not quite what that term means.

A “provident fund” is a retirement fund that works kind of like a cross between a 401(k) and Social Security, and you'll see them most commonly in Asia and in Central and South America. Singapore currently has one of the largest provident funds in the world.

There are some variations in types of provident funds, or PFs, but generally speaking, here’s how they work:

There is a compulsory deduction of funds from our paycheck, like there is with Social Security taxes. But instead of going into one huge pool of money, like Social Security does, that deduction goes into a personal retirement fund, like 401(k) deductions do. Our employers also contribute to provident funds, and the government manages the money. Then, when we retire, we get everything that we and our employer have contributed, plus interest.

Not to rain on anyone’s parade here, but we do feel compelled to point out one teeny-tiny little thing. If we’ve got a PF in another country (which it would have to be, since we don’t really do provident funds here in the U.S.), we should probably give our friendly neighborhood tax preparer a call. Provident funds are taxable in the United States, which means we might owe money not only on the chunk of change we get when we retire, but also on the accruing interest.

And here’s another kick in the shin: we’ll also have to pay taxes on the payroll deductions themselves, which we don’t have to do in American retirement fund situations.