401(a) Defined Contribution Plan

A 401(a) Defined Contribution Plan allows participants to save and invest money for retirement with tax benefits.

An employer can offer both a 401(a) plan and a 457 deferred compensation plan; because of the separate contribution limits, the plans can work together to help build a secure retirement.

What Is a 401(a) Plan?

A 401(a) may include an employer contribution and may require a participant to contribute either a certain dollar amount, or a percentage of their pay with pre-tax dollars. Depending on the terms of the 401(a) plan, the employee may be permitted to contribute additional after-tax dollars as well.

Contributions to 401(a) plans are tax-deferred, meaning that contributions grow tax-free until withdrawn in retirement when the funds are taxed as ordinary income.

Are You a Plan Sponsor? Start a 401(a) Plan

If you'd like to open a 401(a) plan for your employees, contact MissionSquare.

Are You a Participant? Enroll in Your 401(a) plan

If you're a MissionSquare participant, contact us. If you're with another organization, contact your plan sponsor.

401(a) Contributions

Contribution rules are generally determined by the employer. A common method combines employer and mandatory employee contributions.

Participant Contributions

Participant contributions can either be mandatory or voluntary. Voluntary contributions are after-tax.

Are 401(a) Contributions Pre-Tax?

Mandatory contributions are generally made with pre-tax dollars, which reduces your current taxable income. Voluntary contributions are made with after-tax dollars and can be up to 25% of your compensation.

Employer Contributions

The contributions your employer makes are typically a fixed-dollar or percentage amount. Employers that allow voluntary contributions, may elect to match the employee's contribution. An employer can also offer a match into a 401(a) based upon what a participant contributes to a 457(b).

Your employer's contributions may have a vesting schedule, which determines your “ownership” of those contributions and associated earnings. The vesting schedule also determines how much of your account may be paid to you when you separate from service. (You always fully own your own contributions and associated earnings.)

401(a) Contribution Limits

IRS rules limit the total contributions made to your account, including both your employer's and your contributions.

See contribution limits for the current calendar year.

401(a) Investment Options

Participants control how their account is invested, choosing from options selected by their employer.

A typical plan includes a wide range of options, from more conservative stable-value funds to more aggressive bond and stock funds. Participants in a MissionSquare 401(a) plan 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® Advisory Services, if offered by your plan.

401(a) Withdrawal Rules

Withdrawing When Employment Ends

Upon leaving employment, participants may withdraw money from their account as they see fit. They have the flexibility to take money as needed and may have payments automatically deposited to their bank account.

However, an IRS-imposed 10% early-withdrawal penalty may apply to payments taken prior to age 59½.

401(a) Rollovers

You can roll over funds from your 401(a) plan into a variety of other plans, including 457 plans, IRAs, and other 401(a) plans. Learn more about 401(a) rollovers.

Withdrawing When Employed

While you are employed, the available withdrawal options are limited and vary by plan. Some 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).

As with withdrawals made upon separation from service, any in-service distributions made after age 59½ would not be subject to penalty.

If no longer employed, participants must begin making withdrawals at age 73* according to Required Minimum Distribution (RMD) requirements.

Can You Borrow From a 401(a)?

If the terms of a 401(a) plan allow it, under certain circumstances participants may borrow money from their account. Learn more about 401(a) loans and early withdrawals, including repayment rules, hardship withdrawals, and borrowing from a 401(a) plan for a down payment on a home.

401(a) RMD Rules

Required Minimum Distribution (RMD) rules apply to 401(a) plans. An RMD is simply the minimum amount that an employee must withdraw annually in retirement. RMDs begin when someone reaches age 73* and is no longer working for that employer.

An individual must ensure they're withdrawing their full RMD; there are penalties for not doing so. In most cases, the retirement plan administrator will inform the employee what their RMDs are.

If you have any questions about RMDs for one of your MissionSquare accounts, contact us.

Survivor Benefits

Participants designate a beneficiary, or beneficiaries, to receive any remaining assets in their 401(a) account upon their death. Designating beneficiaries can help ensure assets are paid per a participant’s wishes, avoid the potential costs and delays of probate, and allow non-spouse beneficiaries to receive additional tax benefits.

If someone is married, some plans require that their spouse be the beneficiary for 100% of the account funds. The account holder may designate an alternative beneficiary as long as the spouse formally waives this right.

Have a Plan for Withdrawals

Participants should have a plan for taking withdrawals from their account – both to manage the tax bill and to provide for future needs. Further professional advice for MissionSquare plan participants is available through Guided Pathways® Advisory Services.

Opening a 401(a) Plan

If you’d like to open a 401(a) plan for your employees, contact us.

* Age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), or age 73 (if you were born after December 31, 1950).

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