What is a 401a?

A 401(a) plan is a type of defined contribution retirement plan offered by public sector employers and certain non-profit organizations. It's similar to a 401(k) plan, but it has some key differences.

• Eligibility: Generally offered to employees of governmental entities (e.g., state, county, city) and certain 501(c)(3) organizations.

• Contributions: Both the employer and employee can contribute to a 401(a) plan. Employer contributions are often mandatory and are a set percentage of an employee's salary. Employee contributions may be mandatory or voluntary, depending on the plan's design.

• Vesting: The rules for vesting determine when an employee has full ownership of the money in their account. Employer contributions typically have a vesting schedule, meaning an employee needs to work for a certain period before gaining full ownership.

• Distributions: Generally, distributions are allowed upon retirement, separation from service, or other qualifying events, subject to plan rules and IRS regulations. Early withdrawals may be subject to penalties.

• Tax Advantages: Contributions are typically made on a pre-tax basis, reducing current taxable income. Investment earnings grow tax-deferred, and taxes are paid upon withdrawal in retirement. Roth 401(a) options may also be available, offering tax-free withdrawals in retirement.

• Investment Options: Participants typically have a range of investment options to choose from, such as mutual funds, stocks, and bonds.