What’s a 401(a) Retirement Plan and Why Should You Care

A 401(a) retirement plan is a valuable tool for public and nonprofit employers looking to offer structured, tax-advantaged retirement benefits. While similar to a 401(k), the 401(a) plan gives employers more control over contributions and plan design—making it ideal for organizations that want to balance budget constraints with employee financial wellness.

What Is a 401(a) Plan—and How Does It Benefit Employers?

A 401(a) is a defined contribution plan typically offered by:

• Government agencies
• Public schools and universities
• Nonprofit organizations

Unlike a 401(k), the employer controls key plan features, including:

• Contribution structure: Employers can set fixed or percentage-based contributions, and choose whether employee contributions are mandatory or voluntary.
• Vesting schedules: Employers can define when their contributions become fully owned by the employee.
• Plan pairing: A 401(a) can be paired with a 457(b) plan, allowing employees to maximize retirement savings across separate contribution limits.

401(a) vs. 401(k)

While both plans offer tax-deferred savings, the 401(a) is more employer-driven. Government and nonprofit employers typically use 401(a) plans because they cannot offer 401(k)s. Additionally, 401(a) plans are often paired with 457(b) plans, allowing employees to maximize retirement savings across separate contribution limits.

Why Employers Choose 401(a) Plans

• Customizable design: Tailor contribution rules and vesting schedules to align with organizational goals.
• Budget-friendly flexibility: Control employer costs while still offering meaningful retirement benefits.
• Retention and recruitment: Competitive retirement plans help attract and retain top talent in the public and nonprofit sectors.
• Tax-deferred growth: Contributions grow tax-free until withdrawal, supporting long-term financial wellness.

Contribution Limits and Rollover Options

In 2025, the total contribution limit for a 401(a) plan is $70,000 or 100% of salary, whichever is less.

When employees leave, they can:

• Roll over funds into another qualified plan (e.g., IRA or 403(b))
• Take a lump-sum distribution (subject to taxes and potential penalties)
• Leave the funds in the plan until required minimum distributions begin

Early Withdrawals and Penalties

Withdrawals before age 59½ typically incur a 10% early withdrawal penalty unless the employee qualifies for an exception. Employers should educate employees on these rules to help them avoid unnecessary penalties.

Pairing with a 457(b) Plan

One of the most strategic advantages of offering a 401(a) plan is the ability to pair it with a governmental 457(b) plan. Because the contribution limits are separate, employees can contribute the full allowable amounts to both plans—significantly boosting their retirement savings potential.

The Bottom Line

A 401(a) retirement plan is a powerful tool for government, nonprofit, and education employers. It helps your employees save for retirement with tax benefits, employer support, and flexible options. Whether you’re comparing 401(a) vs. 401(k), we’re here to help you and your employees navigate the complexities of retirement plans and saving for retirement. Contact us to talk about what your business needs. Or visit our Government Retirement Plan webpage to learn more.