You may have an opportunity to participate in your employer-sponsored 401(a) defined contribution plan as an additional way to save toward retirement.
A 401(a) defined contribution plan is an employer-sponsored plan. So, your employer determines who is eligible to participate in the 401(a) plan and identifies the investment providers available under the 401(a) plan. Employer contributions to the plan can be a discretionary amount, a fixed amount or may match participants’ contributions. Employee contributions may be made on a pre-tax basis (if they meet the requirements of a governmental pick-up contribution); otherwise, they can be made on an after-tax basis. In general, you pay no federal income taxes on the money put into the plan or any earnings on that money until it is time to take withdrawals.
Who is eligible to participate in a 401(a) defined contribution plan?
Your employer’s 401(a) plan may require you to be employed for a certain amount of time and/or have reached a certain age to be eligible to participate in the plan. In some cases, you may elect to participate in your employer’s 401(a) plan instead of participating in the governmental retirement system.
Are there limits on the amount of contributions that can be made to my plan account?
Total contributions and forfeitures that can be contributed annually to your account under the plan is the lesser of:
When can I take distributions?
While your plan will determine when you can take distributions, IRS rules allow you to access amounts in your plan account when you have terminated employment, retired or become disabled. Some plans may permit you to take an in-service withdrawal of your account under certain circumstances. Your beneficiary may take a distribution of your account upon your death. Since your employer’s 401(a) plan may not permit certain types of distributions, be sure to check with your employer about specific reasons for distribution permitted under your plan.
Distributions from your 401(a) plan before you reach age 59½ are generally subject to an IRS 10% premature distribution penalty tax, unless an IRS exception applies.
Once you are retired, IRS rules require you to begin taking distributions from your 401(a) plan by April 1 of the calendar year following the calendar year in which you are at least age 70½.
Your distribution from your 401(a) plan can be paid in an option available under the investment provider’s product. In the alternative, to the extent permitted under IRS rules, you can roll over the eligible portion of your distribution to an IRA or another 401(a), 401(k), 403(b) or a governmental 457(b) plan that accepts rollovers.
If your 401(a) plan permits, you may be eligible to take a loan from your account balance.
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