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401(a) Vs. 401(k)

Updated: Apr. 11, 2022By: Kent Thune

When comparing a 401(a) vs 401(k), the main difference is that a 401(a) is typically offered by a government entity or non-profit employer and a 401(k) is generally offered by a private, for-profit employer. Learn more about the similarities and differences in these retirement plans.

401a plan for retirement on the black pages.

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Benefits of Defined Contribution Plans

A 401a and 401k are examples of defined-contribution retirement plans sponsored by employers. While they share similarities with each other, they have some different benefits than IRAs. For example, compared to IRAs, defined contribution plans have higher contribution limits, the potential for employer contributions, and automatic payroll deduction.

Note: The main types of defined contribution retirement plans, such as a 401k, 401a, 403b, have contribution limits up to $61,000 in 2022. This limit includes both employee and employer contributions. This compares to the 2022 maximum IRA limit of $6,000. Savers 50 and older can add an additional $1,000 "catch up" contribution to an IRA in 2022.

Differences Between a 401k and a 401a

The primary differences between a 401k and a 401a are the types of employers that sponsor the respective retirement plans and how contributions are made.

401k 401a
Sponsor/Employer Private, for-profit companies Government agencies, non-profit organizations
Contributions Voluntary Mandatory for employer, voluntary for employee if allowed by employer
Investment options Employee chooses among pre-set selection Can be chosen by employer or by employee, if allowed
Taxation on contributions Can be pre-tax or after-tax Can be pre-tax or after-tax
Withdrawals Penalty free at 59 1/2 Penalty free at 59 1/2

401a Basics and Contribution Limits

A 401a plan is a qualified retirement plan that is typically sponsored by public employers, such as government agencies, non-profit organizations, or educational institutions. The contribution limit for a 401a is $61,000 in 2022. This limit includes both employer and employee contributions, which may be made on a pre-tax or post-tax basis.

Since a 401a is a type of money purchase plan, the employer is required to make contributions for employers, while employee contributions are voluntary, if allowed by the plan. Investments may include a range of options, such as a diverse set of mutual funds, like 401a plans offer. However, some 401a plans may have limited investment choices that are chosen by the employer.

401k Basics

A 401k is an employer-sponsored, defined-contribution, retirement savings plan. Employees who are offered a 401k can make automated, voluntary contributions toward their retirement. Employees can also choose how to invest their contributions by selecting among a set of given investment choices, which are usually mutual funds.

The maximum 401k contribution for 2022 is $20,500, as set by the IRS. Employees who are at least 50 years old by the end of the year can make "catch up contributions" of up to an additional annual $6,500 in 2022.

How They Differ at Retirement

Since 401a plans and 401k plans are both qualified retirement plans, differences at retirement depend upon certain plan-specific rules, such as vested balances. Otherwise, standard withdrawal rules are the same for these plans. For example, withdrawals made at or after age 59 1/2 can be made without incurring the 10% early withdrawal penalty.

Which is Better: 401a or 401k

Since a 401a and a 401k are both types of qualified retirement plans sponsored by employers, the features and benefits are often similar. Therefore, determining which is better, a 401a or a 401k, will depend upon the employer and the rules they establish, such as employer contributions and vesting.

For example, a 401a plan may feature mandatory employer contributions and a 401k plan may offer discretionary matching contributions, which means the employer has the choice on whether to make matching contributions.

When comparing 401a vs 401k, what's most important for the employee is that they are offered a retirement benefit in the first place.

This article was written by

Kent Thune profile picture
Kent Thune, CFP®, is a fiduciary investment advisor specializing in tactical asset allocation and portfolio management with a focus on ETFs and sector investing. Mr. Thune has 25 years of wealth management experience and has navigated clients through four bear markets and some of the most challenging economic environments in history. As a writer, Kent's articles have been seen on multiple investing and finance websites, including Seeking Alpha, Kiplinger, MarketWatch, The Motley Fool, Yahoo Finance, and The Balance. Mr. Thune's registered investment advisory firm is headquartered in Hilton Head Island, SC where he serves clients all around the United States. When not writing or advising clients, Kent spends time with his wife and two sons, plays guitar, or works on his philosophy book that he plans to publish in 2024.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

Thanks for the introduction. My employer (higher education) offers both 401(a) (mandatory fixed 5% from employee and 8% match, I cannot change that 5%), and 403(b) voluntary contribution plans. I understand the 403(b) contribution is under the IRS elective deferral limit of $20,500 for 2022. Is my mandatory fixed 5% 401(a) contribution counted under the same limit? i.e. if I contributed $20,000 toward my 403(b) and another $10,000 toward my 401(a), do I exceed the IRS elective deferral limit?
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