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What Are the IRS Guidelines on the 401(a)?

By

澳洲幸运5官方开奖结果体彩网:Claire Boyte-White

Updated September 26, 2024

Reviewed by

Marguerita Cheng

Fact checked by

Vikki Velasquez

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While most Americans are familiar with 401(k) plans as retirement-saving vehicles, there are lesser-known retirement plans. One example is the 澳洲幸运5官方开奖结果体彩网:401(a) plan, which is typically offered by not-for-profits, government agencies, and educational institutions. These plans can be customized by the employer and are often offered as a loyalty incentive. In some cases, public employees may be given 401(a) plans in lieu of government pensions.

Key Takeaways

401(a) plans are offered by governmental entities and other public employers like schools and non-profits.
The terms of a 401(a) plan are set by employers and are highly customizable.
401(a) plans may be available to a select group of employees to foster their loyalty.
Employees are often required to enroll in a 401(a) plan, though it is usually not mandatory that they participate.
A 401(a) plan is similar to a 401(k) plan, though 401(k) plans are more heavily used in the private sector.

The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) draws upon Section 401(a) of the tax code to formulate rules for the administration of 401(a) plans. These💜 rules are similar to rules set for 401(k) plans, which is a subset of section 40🌄1(a).

A 401(a) plan can take many shapes. They can be a 澳洲幸运5官方开奖结果体彩网:profit-sharing plan, 澳洲幸运5官方开奖结果体彩网:money-purchase pension plan, or 澳洲幸运5官方开奖结果体彩网:employee stock ownership plan.

A 401(a) plan resembles a 403(b) tax-sheltered annuity plan. Administrators of 401(a) plans must file Form 5500 reports annually with the IRS.

401(a) Contribution Limits

As of 2024, the maximum allowable contribution to a 401(a) plan is $69,000 or 100% of an employee's salary, whichever is less. This is up from $66,000 in 2023.

Contributions to 401(a♏) plans can come from a variety of sources, including:

Employer contributions that are a fixed dollar amount or salary percentage.
Employer 澳洲幸运5官方开奖结果体彩网:matching contributions.
Mandatory employee contributions made on a pre-tax basis.
Elective employee contributions made on an 澳洲幸运5官方开奖结果体彩网:after-tax basis, up to 25% of total salary.

401(a) Withdrawals and RMDs

As with most other retirement plans, participants who withdraw from their 401(a) prior to reaching age 59½ must pay a 10% early withdrawal penalty.

Participants must also begin taking 澳洲幸运5官方开奖结果体彩网:required minimum distribution𒐪s (RMDs) upon reaching a specific age: 73. (Thanks to the Setting Every Communityꦫ Up for Retirement Enhancement (SECURE) Act, the age increased to 72 from the previous RMD age of 70½. Then, Congress passed the SECURE 2.0 Act, increasing the RMD age to its current level of 73 years old.)

Important

Employees with 401(a) plans may not simultaneously participate in 401(k) plans.

Who Dictates the Terms of a 401(a) Plan?

In some cases, because 401(a) plans are so customizable, the terms and conditions are dictated by the sponsoring employer, rather than by specific IRS guidelines. For example, in addition to delineating the investment options available in these plans, employers govern whether employee contributions are voluntary or mandatory, the amount of each employee's contribution, the degree to which that contribution is matched by employer funds, and whether contributions can be made with pre-tax or after-tax dollars.

What Is the 401(a) Contribution Limit for 2024?

The maximum allowable 401(a) limit for 2024 is $69,000. This is an increase from 2023, when it was $66,000.

What Is the Difference Between a 401(a) and a 401(k)?

A 401(k) is an employer-sponsored retirement plan where both the employee and employer can make contributions, but they don't have to. In a 401(a) plan, both the employer and employee usually make monthly contributions. 401(a) plans are typically offered by government and nonprofit employers while 401(k) plans are used in the private sector. The contribution limits differ, as well. For tax year 2024, you can contribute up to $23,000 ($30,500 if you're 50 or older) to a 401(k). For a 401(a), the contribution limit is $69,000.

The Bottom Line

A 401(a) plan is an employer-sponsored money-purchase retirement plan that allows contributions from the employer, the employee, or both. It's offered by some public sector employers. In 2024, the maximum contribution limit for a 401(a) plan is $69,000. (In 2023, it was $66,000.) If you have questions about your plan, reach out to your employer or your plan administrator.

Article Sources

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