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A 401(a) Money Purchase Plan* allows you to save and invest money for retirement with tax benefits.
Contributions are made to an account in your name for the exclusive benefit of you and your beneficiaries. The value of the account is based on the contributions made and the investment performance over time. No taxes are due, including on earnings, until you make withdrawals.
You may participate in a 401(a) plan and a 457 deferred compensation plan. Both plans work together to help you build a secure retirement.
Contribution rules are generally determined by your employer. A common method combines employer and mandatory employee contributions.
You control how your account is invested, choosing from options selected by your employer.
A typical plan includes a wide range of options, from more conservative stable value funds and CDs to more aggressive bond and stock funds. You may choose to build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice through Guided Pathways.
When you leave employment, you are eligible to withdraw money from your account as you see fit, but you are generally not required to take payments until after age 70½. You have the flexibility to take money as needed, including the ability to have payments automatically deposited to your bank account every month. Payments are generally subject to taxes and an IRS-imposed 10% early withdrawal penalty may apply to payments taken prior to age 59½.
While you are employed, the available withdrawal options are limited and vary by plan. The available options may include the ability to withdraw voluntary after-tax contributions at any time or to withdraw money after you reach a certain age (e.g., 59½, 70½, or the plan's Normal Retirement Age). You may also have the ability to take a loan from your account.
Have a plan for taking withdrawals from your account – both to manage the tax bill and to provide for your future needs. For guidance, view Making a Smart Withdrawal Decision and the Special Tax Notice Regarding Plan Payments.
You designate a beneficiary, or beneficiaries, to receive any remaining assets upon your death. Designating beneficiaries can help ensure your assets are paid per your wishes, avoid the potential costs and delays of probate, and allow non-spouse beneficiaries to receive additional tax benefits.
Note: if you are married, most plans require your spouse be your beneficiary for 100 percent of your account unless your spouse waives this right.
* Your employer may instead sponsor a 401(a) Profit Sharing Plan, which generally has the same rules and benefits as a Money Purchase Plan except employer contributions may be discretionary.