How Does a 401a Plan Work?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn how a 401(a) plan works and its benefits for retirement savings. Explore safe money alternatives for your financial future today! Do you have a 401(a) plan at work for saving for retirement ? What is it, and how does it work? 401(a) plans are a type of retirement savings plan that offer tax-advantaged growth potential for those who use the plan. In this guide, we will explain how 401(a) plans work and some other essential details that are good to know. We will also answer some typical questions about 401(a) plans that people often have. So, if you are looking to learn more about a 401(a) plan and how you might be able to take advantage of it with your employer, then read on! What Is a 401(a) Plan? If you are someone working for a government entity or institution of learning, your employer may offer a 401(a) retirement plan. This retirement account is similar to other workplace plans, such as a 401(k) , in that it lets employees build up tax-advantaged savings and doesn’t interfere with how much money they can save at work. There are, however, some key differences worth noting. One difference between these two retirement plans comes down to who is eligible. A 401(a) plan is commonly known as a “money purchase retirement plan.” Given their limited investment options, 401(a) plans are generally seen as less risky than most 401(k) plans. Employers such as non-governmental organizations, government agencies, and institutions of learning offer this type of retirement savings plan to their employees. The incentive for an employee to enroll in the program is the ability to save up for retirement while employed with the company long-term. With a 401(a) plan, employers often have greater control over the plan’s strategy. Employers with a 401(a) plan usually require that employees contribute a set amount of money each month. Employers may also choose to make extra contributions in addition to the employees’ contributions. Finally, those contributing to a 401(a) plan aren’t allowed to participate in another 401(k) retirement savings plan offered by their employer. How Does a 401(a) Plan Work? 401(a) plans are a great way to save for retirement, but it’s important to understand how they work before enrolling in one. A worker who is eligible for the retireme