Q:

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

A:

Quick Answer

A 401(a) plan and a 401(k) plan are offered by different types of employers, they allow different contribution amounts, and they have different investment choices, explains The Nest. A 401(a) is also mandatory, while an employee decides whether to invest in a 401(k).

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Full Answer

A 401(k) plan is usually provided as a tax-advantage retirement savings plan by corporate and private employers, while government employers provide a 401(a). Each employee in a company receives the same 401(k) plan, including the same employer contributions and contributions limits, but a 401(a) is offered only to certain people in the company and is customizable.

An employee with a 401(k) decides how much money to place in a retirement plan, and the employer may match the amount placed into the fund. An employer determines the amount contributed into a 401(k) for an employee, and contributions are required by both parties. Participation in 401(a) plan is usually mandatory, while a person can voluntarily enter a 401(k) plan.

A 401(k) allows more freedom of choice for the employee, as she can decide where to invest her retirement savings. For example, an employee can decide to invest her savings in the stock market or a mutual fund. With a 401(a) plan, the employer offers investment choices to an employee.

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