what is a 401 a plan 
a 401 a plan is an employer sponsored money purchase retirement plan that allows dollar or percentage based contributions from the employer the employee or both the sponsoring employer establishes eligibility and the vesting schedule the employee can withdraw funds from a 401 a plan through a rollover to a different qualified retirement plan a lump sum payment or an annuity understanding a 401 a planthere are a variety of retirement plans that employers can offer their employees each comes with different stipulations restrictions and some are better suited for certain types of employers a 401 a plan is a type of retirement plan made available to those working in government agencies educational institutions and non profit organizations eligible employees who participate in the plan include government employees teachers administrators and support staff a 401 a plan s features are similar to a 401 k plan which are more common in profit based industries 401 a plans do not allow employees to contribute to 401 k plans however if an individual leaves an employer they do have the option of transferring the funds in their 401 a to a 401 k plan or individual retirement account ira employers can form multiple 401 a plans each with distinct eligibility criteria contribution amounts and vesting schedules employers use these plans to create incentive programs for employee retention the employer controls the plan and determines the contribution limits to participate in a 401 a plan an individual must be 21 years of age and have been working in the job for a minimum of two years these conditions are subject to vary contributions for a 401 a plana 401 a plan can have mandatory or voluntary contributions and the employer decides if contributions are made on an after tax or pre tax basis an employer contributes funds to the plan on an employee s behalf employer contribution options include the employer paying a set amount into an employee s plan matching a fixed percentage of employee contributions or matching employee contributions within a specific dollar range the majority of voluntary contributions to a 401 a plan are capped at 25 of an employee s annual pay investments for a 401 a planthe plan gives employers more control over their employees investment choices government employers with 401 a plans often limit investment options to only the safest and most secure options to minimize risk a 401 a plan assures a certain level of retirement savings but requires due diligence by the employee to meet retirement goals vesting and withdrawals for a 401 a planany 401 a contributions an employee makes and any earnings on those contributions are immediately fully vested becoming fully vested in the employer contributions depends on the vesting schedule the employer sets up some employers especially those who offer 401 k plans link vesting to years of service as an incentive for employees to stay with the company the internal revenue service irs subjects 401 a withdrawals to income tax withholdings and a 10 early withdrawal penalty unless the employee is 59 dies is disabled or rolls over the funds into a qualified ira or retirement plan through a direct trustee to trustee transfer 1qualifying for tax creditsemployees who contribute to a 401 a plan may qualify for a tax credit employees can have both a 401 a plan and an ira at the same time however if an employee has a 401 a plan the tax benefits for traditional ira contributions may be phased out depending on the employee s adjusted gross income 401 a vs 401 k plansa 401 a plan is similar to a 401 k another type of employer sponsored plan that provides a tax advantage for retirement investments the main difference is who participates while 401 k plans are intended for private sector employees 401 a plans are directed towards employees of government bodies educational institutions and charitable organizations these plans also tend to offer fewer more conservative investment options than those found in a 401 k plan if you work in the private sector you can contribute to a 401 k plan after one year but if your employer offers a 401 a plan it takes two years there are also important rule differences between the two types of plans with a 401 k plan participation is voluntary and the employee can decide how much money to contribute towards the plan so long as it is below the legal limit employers may match a portion of the employee s contribution but many do not but in a 401 a plan employers can make it mandatory for their employees to participate but employers are also required to contribute to their employees accounts they can also decide whether the 401 a plan is to be funded with pre tax or after tax dollars offered by private sector employersemployees become eligible after one year employees elect to participate in the plan employers may match a portion of employee contributions more investment options offered by government bodies educational institutions and charities employees become eligible after two years employers can make participation mandatory employers must contribute to their employee s plans investment options tend to be fewer and more conservative than a 401 k tips for a 401 a planas with other types of retirement plans it is important to understand the rules and fees associated with a 401 a before making a significant contribution this caution can help reduce your costs and expenses further down the line here are some ways to make the most out of a 401 a or any other tax advantaged retirement account 