401(a) Defined Contribution Plans
A 401(a) Money Purchase Plan is a retirement savings plan that allows you to set aside money for retirement. Your 401 Plan may allow contributions to be made by your employer, you, or both.
Your contributions may be made on either a mandatory or a voluntary basis. The employer decides on the method of participant contribution, as well as whether participant contributions will be made on a pre-tax (picked-up contributions) or an after-tax basis.
The most common method our clients use is direct employer contributions with mandatory participant contributions with the "pick-up provision." Under this scenario; mandatory employee contributions are made on a pre-tax basis. Your plan may also allow you to make voluntary contributions on an after-tax basis. These voluntary after-tax contributions are limited to 25 percent of your compensation.
Employer contributions to your 401 plan may be made under one of the following methods:
- The employer may contribute a fixed dollar or percentage amount, either with or without a required employee contribution.
- The employer may match a fixed percentage of employee contributions.
- The employer may match the participant contribution within a given range (i.e. a variable employee match).
What are the Benefits of participating in a 401 plan?
- You reduce your current income taxes while you boost your retirement investments.
- You can dollar-cost average through convenient payroll deductions.*
- You have the ability to rollover your savings to another public sector employer's 401 plan, a tax-sheltered 403(b) annuity plan, a 457 plan, or an IRA if you change employers.
- Pre-tax contributions are not subject to federal and (in most cases) state income taxes until withdrawn.
- Earnings accumulate tax-deferred.
- You may also participate in a 457 Deferred Compensation Plan if offered by your employer.
The ICMA-RC administered 401(a) Plan Advantage:
- You choose from a wide range of investment options.
- There are no minimum investment requirements.
- Your designated beneficiaries are entitled to receive all remaining funds in your account in the event of your death.
- You have the most flexible payment options available under law. You determine the payment schedule that is right for you.
- You maintain control over the investments in your account even while you are withdrawing assets.
Keep in Mind:
- If your employer's plan has mandatory contributions, you cannot stop contributing to the plan. The decision to participate is a one-time, irrevocable decision.
- You may stop and/or restart matched employee contributions.
- You are always 100% vested in your employee contributions and earnings.
- There are strict Internal Revenue Code limits on the amount you may contribute each year.
- You should review the 401(a) withdrawal information carefully prior to initiating any withdrawals.
*Dollar cost averaging does not assure profit or protect against loss in a declining market. Since dollar cost averaging involves continuous investing, regardless of fluctuating prices, investors must consider their level of comfort in continuing to invest during a declining market.