401(a) Plan: What It Is, Contribution Limits, Withdrawal Rules

A 401(a) plan is a retirement savings plan sponsored by an employer. It allows employees to save money from their paychecks before taxes are withheld. The money saved in a 401(a) plan grows tax-deferred, meaning you don't pay taxes on your contributions or earnings until you withdraw them from the plan.

There are two types of 401(a) plans: defined benefit plans and defined contribution plans.

* **Defined benefit plans** promise employees a certain amount of money at retirement. The employer is responsible for funding the plan and making sure that employees receive their promised benefits.
* **Defined contribution plans** allow employees to choose how much they want to contribute to the plan each year. The employer also makes contributions to the plan, but the amount is not guaranteed.

The contribution limits for 401(a) plans are the same as for 401(k) plans. In 2023, employees can contribute up to $20,500 to their 401(a) plan, or $27,000 if they are age 50 or older. Employers can make matching contributions up to 3% of an employee's salary.

The withdrawal rules for 401(a) plans are similar to those for 401(k) plans. You can withdraw money from your 401(a) plan without penalty after you reach age 59 1/2. However, there are some exceptions to this rule, such as if you are disabled or if you need to pay for qualified education expenses.

If you withdraw money from your 401(a) plan before you reach age 59 1/2, you will have to pay income taxes on the withdrawal, as well as a 10% early withdrawal penalty.

401(a) plans can be a great way to save for retirement. They offer tax-deferred growth and employer matching contributions, which can help you build your nest egg faster. However, it's important to understand the contribution limits and withdrawal rules before you contribute to a 401(a) plan.