What is the difference between a 401(k) and a 401(a)?


Quick Answer

The differences between a 401(k) and a 401(a) plan are that 401(k) plans are offered by corporations, and 401(a) plans are offered by government entities, Investopedia notes. A 401(a) plan can be offered alongside 401(k) plans. The contribution levels are determined by the employer in 401(a) plans, while the employee with a 401(k) plan decides how much to contribute.

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Full Answer

A 401(k) plan is a traditional retirement plan that is generally offered by most corporations, Investopedia explains. It's a pretax plan where employees set aside a percentage of their pay as an investment for retirement. The amount set aside is determined by the employee, and some employers may match the employee's contribution, although that's not a mandated requirement.

A 401(a) plan is generally offered by government entities and is designed to offer government employees an incentive to stay in their position, Investopedia notes. The mandatory contributions are determined by the employer.

A 401(k) plan generally offers the employee a variety of investment options from which to choose. The employer usually has more control over the investment options in a 401(a) plan. Another key difference is that it is not mandatory for an employee to invest in a 401(k) plan, while some entities may mandate a 401(a) plan, Investopedia says.

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