What is a 401(a)?
If you’ve started exploring retirement plans beyond the typical 401(k), you might have come across a 401(a). It sounds similar to a 401(k), but it has its own set of rules and perks and it’s especially common in government, education, and nonprofit sectors. Understanding how a 401(a) works can help you make smarter choices about saving for retirement, whether you’re starting a new job or considering your long-term options.
401(a) Definition: How This Retirement Plan Works
A 401(a) is an employer-sponsored retirement plan. Unlike a 401(k), participation in a 401(a) may be mandatory or voluntary. In either case, contributions are typically made automatically through payroll deductions.
The 401(a) is designed to help you save for retirement and, like other qualified plans, offers tax advantages. Traditional contributions grow tax-deferred, so you pay taxes when you withdraw in retirement. If your plan includes a Roth 401(a), contributions are made after-tax, and qualified withdrawals can be tax-free.
How Does a 401(a) Work?
Contributions
Both you and your employer can contribute, but the exact rules vary depending on your employer’s plan. Some employers cover the full contribution, while others require a combination of employee and employer contributions.
Contribution limits
In 2025, the total contribution limit for a 401(a) plan is $70,000 (including both employee and employer contributions). While employee contributions are often fixed by the employer, some plans allow voluntary contributions, typically capped at a percentage of pay, commonly up to 25%.
Vesting
Some plans require you to work a certain number of years before you’re fully entitled to your employer’s contributions. This is called a vesting schedule. Your own contributions are always yours.
Withdrawals
Generally, you can’t withdraw funds without penalty until you reach age 59½. Early withdrawals may trigger taxes and a 10% penalty, similar to other retirement plans.
Who typically gets a 401(a)?
401(a) plans are most common in:
- Government jobs: Think state, local, or federal employees.
- Public schools and universities: Faculty and staff may have access to these plans.
- Nonprofits: Some larger nonprofits use 401(a)s to provide structured retirement benefits.
Benefits of a 401(a)
A 401(a) has a few advantages that make it worth paying attention to:
- Forced savings: If contributions are required, it ensures you’re putting money aside for retirement, which can be especially helpful if you tend to spend freely.
- Employer contributions: Many plans include employer contributions, which can potentially boost your retirement savings.
- Tax-deferred growth: Contributions to a traditional 401(a) are made pre-tax, meaning you don’t pay income tax on the money you contribute at the time you contribute it.
- Predictable retirement plan: Because the contributions and rules are set by your employer, a 401(a) provides clarity on how much you’re saving and what you can expect in retirement.
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Get startedThings to watch out for
While a 401(a) is a solid retirement tool, there are a few things to keep in mind:
- Limited flexibility: Unlike a 401(k) or IRA, you may not be able to choose exactly how much to contribute or have full control over investment options.
- Vesting schedules: If you leave your job before you’re fully vested, you might lose some or all of the employer contributions.
- Early withdrawals: Taking money out before retirement age can be costly due to taxes and penalties.
Knowing these limitations can help you plan better and avoid surprises if your career takes you somewhere else.
What to do if you change jobs
If you leave a job with a 401(a), you have several options:
- Leave it in your old plan: Many 401(a) plans allow you to keep your money invested, even after you leave. It continues to grow, but you won’t be able to make new contributions.
- Roll it over into an IRA: Rolling over your 401(a) into an IRA can give you more investment flexibility and consolidate your retirement savings.
- Roll it into a new employer’s retirement plan: Some employers accept 401(a) rollovers into their 401(k) or 403(b) plans. This option keeps your retirement money in one place and makes it easier to manage.
Cashing out should generally be avoided unless necessary. The taxes and penalties can seriously set back your long-term retirement goals.
Tips for managing your 401(a)
- Check the vesting schedule: Before leaving a job, know how much of the employer's contributions you actually own.
- Understand the investment options: Make sure your money is invested in a mix that aligns with your risk tolerance and retirement timeline.
- Consider consolidation: If you have multiple retirement accounts, consolidating can make it easier to manage your overall retirement strategy.
- Ask questions: 401(a) plans can vary by employer, so it’s always a good idea to speak with your HR or plan administrator if you’re unsure.
Roll Over Your 401(a) with PensionBee
A 401(a) may not be as widely discussed as a 401(k), but it’s a valuable tool for building your retirement savings. Whether it’s mandatory contributions, generous employer matching, or predictable growth, a 401(a) can form the backbone of your retirement strategy, especially if you work in government, education, or a nonprofit.
If you change jobs, understanding your rollover options is key to keeping your savings growing and avoiding costly mistakes. PensionBee helps make it simple to roll over your old 401(k)s. 401(a)s and IRAs into one account, giving you a clear view of your savings. Many rollovers happen automatically, but if yours needs extra attention, our personal rollover managers (called BeeKeepers) are ready to guide you every step of the way. With expert management and diversified portfolios powered by ETFs like SPY and MDY from State Street Investment Management, one of the world’s largest asset managers.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.
