A 414h retirement plan is a tax-deferred government retirement plan. It is a money purchase initiative in which government employers mandate employee contributions, which are then “picked-up” by the employer to be formally characterized as “employer contributions.”
A 414h retirement plan is offered to government employees of any agency, political subdivision or state. The bulk of government employers make participation in 414h retirement plans a condition of employment.
The 414h retirement plan allows public employees to save for retirement without paying income on the funds they contribute or on the associated earnings accrued. It allows government employees to defer income tax by electing to place their contributions in a personal retirement account.
Contributing to a 414h retirement plan automatically reduces the individuals income tax liability. The contributed amount is not reported as taxable income until the individual begins withdrawing funds from the account.
Under the 414h retirement plan, the employer sets the contribution amount. The contribution includes a required employee contribution and the associated employer contribution. Funds can be accessed from the 414h account when the employee retires or leaves their position. Distributions must be made no later than April 1 of the year the employee retires or reaches 70.5 years of age.