A 401(a) plan is a retirement savings option offered mostly by government agencies, schools, and nonprofits. Your employer sets the rules for how much you contribute, and sometimes, they require it. The plan helps you save for retirement, with added benefits like employer contributions and tax perks.

What’s the difference between a 401(k) and 401(a)?

Both are employer-sponsored retirement plans, but they’re a bit different. Here’s a quick breakdown:

  • Eligibility: 401(a) plans are for government or nonprofit employees, while 401(k)s are more common in private-sector jobs.
  • Contributions: In a 401(a), your employer decides how much you put in, and they may require contributions. With a 401(k), you choose how much to contribute, and your employer might match it.
  • Investment options: 401(a) plans usually offer fewer investment choices, while 401(k)s tend to have more variety.
  • Withdrawal rules: Both plans charge penalties for early withdrawals, but the specifics depend on your employer.

How do you contribute to your 401(a)?

Your employer sets the rules, but generally, contributions include:

  • Mandatory employee contributions: Some employers require you to contribute a set percentage of your salary.
  • Employer contributions: Employers might put in a fixed amount or match your contributions.
  • Tax benefits: Contributions are typically pre-tax, which lowers your taxable income.
  • Investment growth: Your contributions get invested, so over time, they can grow depending on the plan’s options.

What is the contribution limit for a 401(a) plan?

The IRS sets a cap on how much you can contribute. For 2024, the total limit (employee and employer contributions combined) is $69,000 or 100% of your salary—whichever is less. The limit can change every year with inflation.

Can you take money out of your 401(a)?

Yes, but keep in mind:

  • Retirement age: You can withdraw funds without penalties once you hit 59½.
  • Early withdrawals: If you pull out money before 59½, you’ll likely face a 10% penalty plus taxes.
  • Hardship withdrawals: Some plans allow early withdrawals if you’re facing financial hardship, but the rules vary by employer.
  • Loans: Some 401(a) plans let you borrow against your balance, but you’ll need to pay it back.

What happens to your 401(a) after leaving a job?

When you leave a job, you’ve got a few options for your 401(a):

  • Rollover: You can roll your funds into an IRA or another retirement plan and keep it tax-deferred.
  • Leave it with the employer: Some plans let you leave the money in the old plan, but your investment choices may be limited.
  • Withdraw the funds: You can cash out, but you’ll pay taxes and possibly penalties if you’re under the retirement age.
  • Transfer to a new employer’s plan: If your new employer offers a similar plan, you can transfer your balance.

Knowing your options makes it easier to make the right call for your retirement savings.

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