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401 A

What is 401(a)?

401 A is a retirement plan of an employee by an employer. The plan entails financial contribution by the employer or by both, the employee as well as the employer on a certain percentage, or any other, basis. Usually, it is 25% calculated annually on the salary of the employee and the amount is deposited in the accounts of the employee. In such an arrangement, the employee may withdraw the amount as lump-sum, annuity i.e. annual basis for the rest of the life, or through a rollover upon another retirement plan. This sort of plan is usually practiced in non for profit businesses, education institutions, and/or government run organizations. The eligibility criteria for being part of such an arrangement is the 21 years of minimum age with at least two years working on the job, but these conditions may vary. A 401 A participation is usually mandatory.

Legal status

As per US Law, Internal Revenue Code sub Section 401A, a plan of government namely 401A is for the employees of and/or under the United States, US agency, or its instrumentality, established by the employer.

Employee Perspective

In a 401A retirement plan, it is a secure method for employees to invest in with an amount to be contributed by the Employer as well. It has different withdrawal options available for the employee over the period of time. Employees taking part in such a plan become eligible for the tax credit.

Employer’s Perspective

In 401A retirement plan, though the employer is the shareholding financer only which the monitory benefit goes to the employee, at the same time the employer is the decision maker for the basis of such an arrangement for the long run. Too, the employer has the benefit of possible employee retention.

Related: 401(k)403(b)