What Is a 401(a) Plan? Retirement Rules and Benefits

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If you work for a school, city or government agency, chances are your retirement plan isn’t a 401(k) — it’s a 401(a). A 401(a) plan is a type of employer-sponsored retirement account built for public employees and certain nonprofit workers. Unlike a 401(k), it typically requires mandatory contributions and gives employers more control over how much is invested and where the money goes.

Here’s exactly how a 401(a) plan works, how it compares to a 401(k), what the 2025 contribution limits are and how to manage your withdrawals and rollovers as you head toward retirement.

Quick Fact: According to the Bureau of Labor Statistics, about 99% of full-time state and local government employees have access to a workplace retirement plan — and nearly 88% actively participate in one. That means if you’re in public service, understanding your 401(a) can make a big difference in your long-term wealth.

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

Key Insight: A 401(a) is built for stability and consistency, while a 401(k) emphasizes flexibility and control. Both offer strong tax advantages, but your eligibility depends on your employer type.

How a 401(a) Plan Works

A 401(a) functions like a structured, employer-guided 401(k):

• Employer-designed: Your employer sets the plan’s rules, including whether contributions are mandatory, how much goes in and which funds you can invest in.
• Mandatory contributions: You usually contribute a fixed percentage of your pretax income automatically each pay period.
• Employer match or set contribution: Employers are required to contribute, either as a percentage match or a fixed dollar amount.
• Vesting schedule: You always own the money you contribute, but employer funds typically vest over time — for example, 20% per year for five years.
• Tax benefits: Contributions reduce your taxable income now and grow tax-deferred until withdrawal.

Data to Know: At the end of 2024, the average 403(b) balance was $117,800, according to Fidelity’s Q4 analysis, reflecting the stability of employer-funded plans like the 401(a).

401(a) Contribution Limits for 2025

The IRS limits total 401(a) contributions — including both employer and employee funds — to $70,000 in 2025 or 100% of your compensation, whichever is lower.

Key points:

• There are no catch-up contributions for employees age 50 or older (unlike 401(k) plans).
• Contributions are tax-deferred, meaning you don’t pay taxes until you withdraw the funds in retirement.
• Some plans allow voluntary after-tax contributions in addition to mandatory pretax ones.

Data from Public Plans Data reports that public pension plans collectively have $6 trillion in assets and pay out $405.5 billion in annual benefits, making them the go-to option for public sector retirees during their Golden Years.

401(a) Vesting Schedule & Rollover Timeline

Tip: Most public-sector 401(a) plans follow a 3 to 5 year vesting schedule, though some vest immediately. Always check your plan’s Summary Plan Description (SPD) before switching jobs.

Who Typically Has a 401(a)?

A 401(a) plan is standard for public-sector workers and employees at educational or nonprofit institutions, including:

• Public school teachers and administrators
• State, county, and municipal employees
• Police officers, firefighters, and first responders
• University and hospital staff
• Certain nonprofit employees and union workers

According to the U.S. Bureau of Labor Statistics’ National Compensation Survey (NCS) data for March 2022, about 92% of state and local government workers had access to a retirement plan and 82% chose to participate — underscoring how crucial it is to understand your plan’s rules before retirement.

Real-Life Example

Let’s say you’re a public school teacher earning $70,000 annually. Your 401(a) plan requires you to contribute 5% ($3,500), and your employer contributes another 5% ($3,500). Together, you’re saving $7,000 a year, tax-deferred and automatically invested.

Over a 30-year career, assuming a 6% average annual return, that adds up to about $553,000 in retirement savings — and that’s before accounting for raises or compounding employer matches.

Investment Options in a 401(a)

401(a) investment menus are employer-selected and often narrower than those in a 401(k) or IRA. You may see:

• Target-date funds (adjust risk automatically as you age)
• Bond or stable value funds (for lower risk)
• Equity index funds (for long-term growth)

While you might not have dozens of options, 401(a) funds are typically low-cost and professionally managed — ideal for employees who prefer hands-off investing.

401(a) Withdrawal and Tax Rules

Like other retirement accounts, your 401(a) balance is meant for long-term saving — not early withdrawals.

Here’s what to expect:

• Withdrawals are taxed as ordinary income when taken in retirement.
• If you withdraw before age 59½, you’ll generally owe a 10% early withdrawal penalty, plus income tax.
• Required minimum distributions (RMDs) begin at age 73.
• Some employers allow loans or hardship withdrawals, but rules vary by plan.

According to the IRA, in 2017, the most recent year for which data is available, Americans lost approximately $5.7 billion to early withdrawal penalties — a reminder to leave your 401(a) funds untouched until you retire.

401(a) Rollover Options

If you leave your job or retire, you can roll over your 401(a) into another tax-advantaged account to keep your money growing:

• Traditional IRA: Preserves tax-deferred status.
• Roth IRA: Converts to after-tax savings (you’ll owe taxes on the converted amount).
• New employer’s 401(k) or 403(b): Keeps all retirement funds under one plan.

A direct rollover (plan-to-plan transfer) avoids tax withholding, while an indirect rollover (paid to you) triggers 20% withholding and strict 60-day deadlines.

Final Take to GO: Is a 401(a) Plan Right for You?

If you work in education, public service or a nonprofit, a 401(a) plan is one of your most reliable ways to save for retirement. With mandatory employer contributions, tax-deferred growth and a high annual limit, it can help you build substantial long-term wealth — even if the investment choices are more limited.

To make the most of your plan:

• Stay long enough to fully vest in your employer’s contributions.
• Use a retirement calculator to project your growth.
• Consider rolling your 401(a) into an IRA or 401(k) when you retire for more control over your money.

Next steps:

• Use the GOBankingRates Retirement Calculator to estimate your 401(a) balance by retirement age.
• Learn how to invest your 401(k) if you move to a private-sector job.

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Sarah Sharkey contributed to the reporting for this article.

This article has been updated with additional reporting since its original publication.

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