What Is a 401(a) and How Is It Different From a 401(k)?

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A 401(a) retirement plan is much less common and more quirky than a 401(k).

However, there are many similarities between a 401(a), which is available to some government, nonprofit and education employees, and a 401(k). Both are tax-advantaged retirement accounts that can help you put away big bucks for your future.

In this article, I’ll explain how a 401(a) works and what the differences are between 401(a) and 401(k) plans.

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What Is a 401(a) and Who Is Eligible?

A 401(a) is a tax-deferred retirement savings plan available to some employees working in government, nonprofit and education.

A 401(a) plan offers much greater control to the company than a 401(k) does. The employer gets to determine almost every plan detail and can even customize different plans for different employees.

Companies often use 401(a) plans as retention tools, incentivizing key employees to stay, through a combination of vesting schedules and the customization of individual plans.

With a 401(a), employer contributions are mandatory. Employee contributions usually are mandatory as well.

In order to qualify for a 401(a) plan, you must be at least 21 years old, and you must have worked for the company for at least two years.

How Does a 401(a) Work?

Like other workplace retirement plans, a 401(a) is designed to divert some of your compensation into a tax-advantaged account to help fund your retirement.

If you’re a star employee, a 401(a) plan can be great. Companies don’t have to offer equal plans to everyone, so you might think of a really good 401(a) as a big pat on the back.


However, most 401(a) plans offer few choices for you as an employee.

Let’s take a look at some of the choices that are up to the employer with a 401(a) plan:

  • Eligibility criteria. Outside of the minimum age and tenure requirements, each company can set its own criteria for eligibility.
  • Pre-tax or post-tax. The company will determine whether its employees can contribute pre-tax dollars (like a traditional 401(k)) or post-tax dollars (like a Roth 401(k)).
  • Mandatory employee contributions. If a company decides that employee contributions will be pre-tax, employees will be required to make contributions. If a company decides on post-tax dollars, employee contributions usually will be voluntary.
  • Contribution amounts. The employer decides how it will contribute. It can contribute a specific dollar amount or a percentage of the employee’s pay.
  • Vesting schedule. Employee contributions are always “fully vested,” which means that you immediately own any money you put in. However, employer contributions can be subject to vesting. That can be “cliff” vesting: If you leave the company before a certain time period, the employer will revoke all of its contributions. Or it can be “graded” vesting: The company releases a portion of its contributions you’ve earned when you reach certain tenure milestones.
  • Investment options. In theory, a 401(a) plan can offer investment options as diverse as a 401(k) plan. In reality, the options that companies offer through 401(a) plans tend to be more limited and more conservative.

How To Withdraw From a 401(a) Plan

Like most everything related to 401(a) plans, the withdrawal methods that employees can use depend on the employer’s decisions.

You may be able to withdraw your voluntary (after-tax) contributions whenever you want. You also may be able to take out a loan against your 401(a) funds.

Typically, 401(a) withdrawal methods include:

  • Rollover. You’re allowed to roll your 401(a) funds to another 401(a), a 401(k) or an IRA. This 401(k) rollover “how to” applies to 401(a) rollovers as well.
  • Partial or lump sum. Some companies allow you to withdraw portions of your 401(a), while others require you to cash it out all at once. An employer’s withdrawal rules can also depend on whether you’re at least 59½ years old.
  • Annuity. Some 401(a) plan providers allow you to use your retirement funds to buy an annuity. Money expert Clark Howard strongly opposes most annuities.

401(a) vs. 401(k): Key Differences

Typical Business TypePublic sectorPrivate sector
Employer ContributionsUsually mandatoryNot required
Who Sets Employee Contribution Limits?Employer (almost always)Federal government
Who Decides: Pre-Tax or Post-Tax Contributions?EmployerEmployee chooses (if company makes both options available).
Plan AvailabilityOften offered only to specific employeesEqually available to everyone
Vesting On Employer Contributions?Often yesUsually no
Investment OptionsUsually more restrictive and conservativeUsually offers more options

On the surface, the differences between a 401(a) vs. 401(k) may seem trivial.

However, 401(k) plans offer somewhat standard benefits, usually to every eligible employee. Employees choose whether to contribute.

With 401(a) plans, top employees typically get custom-built plans that are designed to provide an incentive to stay with their company. The employer exerts much greater control with a 401(a) plan than with a 401(k) plan.

401(a) Contribution Limits for 2021

The total 401(a) contribution limits for 2021 are:

  1. $58,000 in total contributions (employer plus employee);
  2. 100% of your compensation, whichever is lower.

401(a) plan contribution limits are simpler than other retirement plans.


The employer decides whether employers will make pre-tax or post-tax contributions.

With pre-tax dollars, employee contributions are mandatory. The company will determine how much each employee will contribute.

With post-tax dollars, contributions usually are voluntary. Per IRS rules, employees are limited to a maximum of 25% of their pre-tax income.

401(a) Withdrawal Rules

Much like a 401(k) and an IRA, you’ll have to wait until you reach 59½ years old to withdraw from your 401(a) without penalty. Taking money out any earlier will trigger a 10% IRS early withdrawal penalty.

You’re also required to start taking money out of your 401(a) once you turn 72 years old. After all, the IRS wants to make sure it gets a chance to tax your money within your lifetime.

These mandatory withdrawals are called Required Minimum Distributions (RMDs). Technically, you can wait until April 1 the year after you turn 72 to make your first withdrawal. But keep in mind you’ll need to make another annual withdrawal by Dec. 31 of that same year, which could impact your income tax bill.

Want more information on how to calculate your RMDs? Clark.com has you covered.

Advantages of a 401(a)

Here are some of the biggest benefits of 401(a) retirement plans:

  • Mandatory company contributions. If your company offers you a 401(a) plan, it is required to contribute to your plan each year. That’s not the case for companies that offer 401(k) plans.
  • Theoretically high contribution limits. You and your employer can set aside up to $58,000 in total contributions via a 401(a) plan according to the IRS. That’s a much bigger number compared to just $6,000 for an IRA ($7,000 including catch-up contributions if you’re at least 50 years old). However
  • Beneficial for standout employees. With many types of retirement plans, a company must set the same contribution rules for everyone. That’s not the case with 401(a). Companies are legally allowed to create a 401(a) plan with better terms for certain individuals.
  • Tax-advantaged investing. If your employer provides 401(a) plan with pre-tax contributions, you’ll be able to reduce your tax bill when you put money into the plan. If your employer provides a plan with post-tax contributions, you won’t have to pay any taxes when you withdraw during retirement. In either case, you won’t pay taxes on any money you earn from your investments while the money remains inside of the 401(a).

Disadvantages of a 401(a)

Here are some of the biggest downsides of 401(a) retirement plans:

  • Company holds major control. Employers have lots of control and choice within this type of retirement plan. The employee: not so much.
  • Employee contributions probably will be mandatory. Looking at it from one perspective, this is a good thing. Many employees with workplace retirement plans take a passive approach. For example, employees who get auto-enrolled in 401(k) plans usually don’t opt out. (According to Forbes, as of 2018, 92% of auto-enrolled employees participated in 401(k) plans. Just 57% of employees without auto-enroll participated.) But you may not be thrilled that a significant percentage of your earnings can go into a 401(a) retirement plan without your deciding to put it there.
  • Can take time to become eligible. Companies are allowed to institute a two-year waiting period before you’re eligible for a 401(a) plan.
  • Investment options likely limited. These plans typically allow investments into a small group of fairly conservative options. However, that’s not necessarily a bad thing, especially if the list includes a target date fund.
  • No catch-up contributions. With 401(k) and IRA plans, you can make additional “catch-up” contributions once you reach 50 years old. That isn’t the case with 401(a) plans.

Final Thoughts

Your employer may offer a 401(a) retirement plan rather than a 401(k). Regardless, your big-picture goal remains the same: Maximize this tax-advantaged investment opportunity to fund your retirement.


401(a) plans can contain nuances and can be tailored to individuals. So it’s a good idea to ask questions of your company’s plan administrator or an outside financial advisor.

Your 401(a) plan may offer limited investment options. That’s totally OK. You’ll probably be able to invest in a target date fund, which is what Clark almost always recommends.

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