What Is a 401(a) Plan?

A 401(a) plan is an employer-sponsored retirement account that typically covers government workers and employees from specific education institutions and nonprofits. It is different from an IRA in that the employer sponsors the plan, determines the investment options that the employees can choose from, and sets the vesting schedule (the amount of time an employee will have had to have worked with the organization before all employer contributions become fully theirs, even if they leave the company).

Who Contributes to Each Plan?

Under a 401(a) plan, your employer is required to make contributions to the plan, and you can choose to contribute, too, according to the IRS.

How Much Can You Contribute?

In 2018, 401(a) contribution limits increased from $54,000 to $55,000, according to the International City/County Management Association. This includes both employer and employee contributions. However, employees with 401(a) plans can also contribute to a 403(b) plan and a 457 plan at the same time.

Can You Borrow from Each Plan?

You can borrow from either plan if you have an immediate financial need, but there are some restrictions. Your employer can limit the amount you borrow from your 401(a) plan and may even choose to not allow you to borrow money at all. Legally, you cannot borrow more than half the value of your 401(a) account or $50,000—whichever is less. Because you are borrowing money from your own account, when you pay back the loan’s interest, you are paying it to yourself.

When Can You Withdraw From Your Retirement Plan?

You can begin to withdraw money from your 401(a) plan without penalty when you turn 59½. If you make any withdrawals prior to 59½, you’ll need to pay a 10% early withdrawal penalty. Once you reach 70½, you are required to make withdrawals if you haven’t already started to.

What are Some Less Restrictive Options?

While 401(a) and 401(k) plans have many restrictions, there are less restrictive options that allow you to start investing early. If you’re SoFi member, you can open a Invest Account and start off with just a small contribution. Other investment accounts may require a $500 minimum to open an account.

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