401(a) Defined Contribution Plans
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.
- Contributions you make are mandatory or voluntary. Mandatory contributions are generally pre-tax (picked-up), which reduces your current taxable income. Voluntary contributions are after-tax, up to 25% of your compensation (an IRS limit for total contributions to the plan also applies – see below).
- Contributions your employer makes are typically a fixed dollar or percentage amount, or a match of your contributions.
Your employer’s contributions may have a vesting schedule, which determines your “ownership” of those contributions and associated earnings and how much of your account may be paid to you when you separate from service. (You always fully own your contributions and associated earnings.)
- IRS rules limit the total contributions made to your account, including both your employer's and your contributions. The 2013 total contribution limit is $51,000.
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.
- To review investment options for your plan, login to your account.
- To learn more about investing for retirement, visit www.icmarc.org/invest.
You can make withdrawals from your account when you leave employment. You have the ability to take periodic payments as needed or request scheduled automatic payments. You maintain control over your investments and continue to benefit from tax deferral even after you leave your employer.
During employment, subject to your employer and IRS rules, you may also be able to make withdrawals of voluntary after-tax contributions or after age 70½. A loan option may also be available.
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 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.