What is a 401(a)?

If you’re employed by a governmental, nonprofit, or educational institution, you might see something called a 401(a) plan listed in your employee benefits package. This is not to be confused with the more common 401(k) retirement savings plan. Here are the ins and outs of a 401(a) plan and how it could help prepare you for a financially secure future.

What is a 401(a) plan?

A 401(a) plan is a retirement plan sponsored by an employer that primarily houses contributions made by the employer. These contributions are normally non-elective, which means they're made whether or not the employee chooses to make contributions themselves. They can also be elective or “match” contributions provided employees make deferrals to a companion plan, such as a 403(b) or 457(b), that is also sponsored by the employer.

How does a 401(a) plan work?

As the name implies, a 401(a) plan comes from Internal Revenue Code section 401(a) and serves as the building block that powers retirement savings for many people, including through profit-sharing plans, money purchase plans, and 401(k) plans.

Technically, a 401(k) plan a type of 401(a) plan. But in for-profit companies, rather than have a separate 401(a) plan that holds employer profit-sharing contributions, all employer-sponsored retirement plan funds are typically presented to participants as one vehicle: a 401(k) plan.

While nonprofits, educational institutions, and governmental agencies (in some cases) may sponsor a 401(k) plan, they may choose to keep things separate, with 401(a) plans housing employer contributions and 403(b) plans or 457(b) plans keeping employee contributions. Keeping separate accounts like this may allow employees to contribute more to their retirement savings than a 401(a) plan alone. We cover this in more detail below.

How do 401(a) plan contributions work?

If your employer offers a 401(a) plan, you may see it labeled as a profit-sharing or money purchase plan. Profit-sharing plans allow employers to contribute a percentage of compensation for eligible employees based on an allocation formula that is included in the plan document. Money purchase plans, meanwhile, require employers to commit to a set contribution percentage of eligible employees’ eligible compensation each year. In either case, your 401(a) is letting your employer contribute to your retirement savings.

Even though your employer may make annual contributions to the plan on your behalf, your level of ownership of those contributions is dependent upon the plan’s vesting schedule. A vesting schedule shows how much of your account balance you actually own and is usually communicated in ownership tiers that increase gradually based on your years of employment and hours worked. For example, after 2 years of employment or service with your employer, you may own 20% of your employer’s contributions. After your third year of service, your ownership level may increase to 40%—and so on—until it reaches 100%.

Your 401(a) plan may allow for employee contributions as well. If these are allowed, the contributions are always fully vested, and depending on the type of employer, may be mandatory.

An important note about the tax treatment of contributions: When an employee contributes their own money to a 401(a) plan, it’s made on an after-tax basis. However, when an employer contributes to the plan on behalf of its employees, it’s made on a pre-tax basis.

If you work for a government agency, you may have the opportunity to contribute on a pre-tax basis if your employer agrees to “pick up” your contribution—or after-tax contributions may be mandatory as a condition of your employment. Note: this rule doesn't apply for 457(b) plans. Check with your benefits provider to see what savings opportunities you may have. The type of contribution made may impact how account withdrawals are taxed, which we also cover later.

Advantages of a 401(a) plan

A 401(a) plan can be a valuable retirement savings tool. Here are the primary benefits to you as an employee.

Employer contributions

Contributions are made by the employer on your behalf, which helps to increase your retirement readiness on a pre-tax basis; any earnings also grow on a tax-deferred basis. This provides greater flexibility with how you use your personal income to work toward meeting your short-, mid-, or long-term financial goals.

But make sure to account for any vesting schedule that may apply to employer contributions when you’re crafting your financial plan. The value of your account may compound over time, even before you’re fully vested.

Your employer may combine a 401(a) plan with another type of retirement plan, like a 403(b) or 457(b). This would allow you as the employee to save the maximum amount in those accounts while your employer also contributes to at least one of those plans on your behalf.

Compounding

Compound returns are when returns earn returns of their own. This could potentially help your money grow and assist in working towards your financial goals. Please note, compounding doesn't ensure a profit or protect against loss in declining markets.

While your employer chooses which investment options are available in your 401(a) plan, it’s up to you to make sure that your contributions are invested in a position for potential growth over time.

401(a) plan contribution limits for 2025

The maximum amount that can be contributed to your 401(a) account in 2025, including employer and employee contributions, is $70,000. This amount adjusts annually to account for the cost of living.

Another factor: The amount of compensation that can be taken into consideration when determining how much your employer may contribute toward your 401(a) account is limited to $350,000 in 2025. This is also adjusted annually for the cost of living.

If a 401(a) plan is combined with another plan, like a 403(b) or 457(b), your employer may be able to contribute the maximum allowed by the IRS to a 401(a) account as well as the maximum allowed by the IRS (minus any after-tax contributions) to your other employer-sponsored retirement account.

401(a) plan withdrawal rules

Since a 401(a) plan is a retirement account, it’s smart to keep funds in there for the long haul. 401(a) plans may allow for withdrawals upon hitting age 59½, or after certain events, like death, disability, hardship, or upon separation from the sponsoring employer. Generally, any amount withdrawn before age 59½ is considered an early distribution and may be subject to a penalty, in addition to normal taxation.

Still, you can’t keep funds in your 401(a) indefinitely. Required minimum distributions (RMDs) apply starting at age 73. These minimum withdrawal requirements are mandatory, and can incur up to a 25% penalty if not taken. However, if you're still working for your employer after the RMD start age, you don't have to begin taking RMDs from the plan you have with your employer until you retire.

401(a) vs. 403(b)

As mentioned above, a 401(a) plan and a 403(b) plan may be paired together as part of your retirement offering. Because employers decide which plans are offered, you likely will not be able to choose whether your available retirement vehicle is a 401(a), a 403(b), or both.

That said, here are the high-level similarities and differences between a 401(a) plan and a 403(b) plan.

401(a) vs. 401(k)

Your employer decides whether to offer a standalone 401(a) plan, or a 401(k) plan that holds both employee contributions and employer contributions. Usually, private sector companies offer 401(k)s while those in the nonprofit or governmental space may use separate 401(a)s to hold employer contributions.

The main difference between 401(a)s and 401(k)s is that 401(k)s allow employees to make contributions with pre-tax dollars. 401(a)s may allow for employee contributions, but if they do, they will be with after-tax dollars unless you work for a governmental employer—and may be required contributions. How much or how little you contribute to a 401(k), meanwhile, is your choice, up to the IRS limit.

These are high-level similarities of and differences between 401(a)s and 401(k)s.