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What is the difference between a 401(a) and a 401(k)?

A:

The difference between a 401(a) plan and a 401(k) plan is a 401(a) plan is any employer-only contribution plan such as a profit-sharing plan, employee stock ownership plan or money purchase pension plan, while a 401(k) plan is a specific type of profit-sharing plan that is actually included in the 401(a) section of the Internal Revenue Code.

What Is a 401(a) Plan?

A 401(a) plan is a retirement savings plan normally offered by government institutions rather than by corporations. These plans are usually custom-designed and are only offered to key government employees as an added incentive to stay with the organization. The contribution amounts are normally set by the employer and are mandatory.

What Is a 401(k) Plan?

A 401(k) plan is a more traditional retirement plan that is normally offered by all corporations. A 401(k) plan is a pretax retirement savings plan that allows an employee to put aside a certain percentage of

his paycheck toward investing in retirement. The percentage amount is determined by the employee, and some corporations may provide a matching program, although this is not a requirement.

What Are the Differences Between a 401(a) Plan and a 401(k) Plan?

While 401(a) plans and 401(k) plans are both retirement savings plans, there are a few key differences:

First, 401(k) plans are offered by corporations, while 401(a) plans are offered by government institutions and can be offered in addition to 401(k) plans.

Second, while a 401(k) plan allows for the employee to decide how much he wants to contribute, the contribution levels of a 401(a) plan are set by the employer.

Third, and similar to the second difference above, a 401(k) plan offers the employee a range of investment options, while a 401(a) plan gives more control to the employer regarding investments.

Finally, while a 401(k) plan is not mandatory, a 401(a) plan could be mandatory.


Category: Savings

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