The 401a plan is a money purchase retirement plan that is set up by the employer. This plan allows for both employers and employees to contribute towards the account. The contributions to this plan can be made either on a voluntary or mandatory basis. The mode of contribution (voluntary or mandatory) is decided by the employer. The employer also decides whether the contributions made to this plan will be made pre-tax or after-tax basis. The most common type of contributions are made to this plan are mandatory participant contributions which are usually pre-tax. However, this plan may also allow individuals to make voluntary contributions towards the plan on an after-tax basis. This after-tax contribution is limited to 25% of the compensation.
Benefits of the 401a Plan
As with all retirement investing plans, the primary benefit that is received from the 401a plan is that the contributions made by the individual will not be taxed, thus reducing the amount of taxable income. Also these contributions that are made to the retirement account boost the average retirement savings. However, when the amount is finally withdrawn from the account it may be taxable person contacts and handsome individual.
There is another option that is available with the 401a plan which is the ability to be able to roll over the savings to another 401 plan, 403b plan, IRA plan, or even a 457 plan. As with most of the retirement investing plans, the contribution from the fund in the account grows tax-deferred.
Who can participate in these plans?
The 401a plan is available for any employee to participate. Whether the employee works full-time or part-time does not matter as long as the employee works more than 20 hours in a week. Another requirement is that the employees should have been working with the company for more than one year and during that time should have worked for at least 1,000 hours in that year. If an employee has invested another retirement plans they may also be eligible to participate in the 401a plan as long as they have been participating in the other plan for at least three months and they not receive any current benefit from the other plan.
401a Withdrawal Rules
Like most retirement plans, the 401a plan also has rules regarding the withdrawal of funds. One of the rules states that if a person is under the age of 59 ½ years, he or she may not be eligible to withdraw any fund. However if the individual withdraws any funds from the account before reaching that age, it may attract a penalty of 10%. Also once a person starts withdrawing from the plan, all the withdrawals are subject to income tax.
A 401k plan is one of the earliest retirement savings plans that came about in the United States. These plans are similar to the 401a plan in the sense that the taxation policies are similar for both plans.