401(A) Plans - Cash Purchase Plan Explanation

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A 401(a) investment plan is sometimes also known as a Money Purchase Plan

. It is a kind of saving plan which allows you to make savings for your retirement years. These plans are usually offered by your employers and contributions to the fund can be made by employer, yourself or sometimes both. The contributions to the fund can be voluntary or are sometimes mandatory. As per rules, the employer may decide if these contributions are required to be made on post tax basis or pre tax basis.

These contributions will be on the pre tax basis if employer has picked up the provision. You can however make your own additional contributions. If you decide to contribute then it will be on post tax basis. The Voluntary contributions are capped at 25% of salary. Your employer could contribute by variety of methods. They could have a dollar preset amount or may go in for a percentage or even match the contributions made by you by a certain percentage.

There are immense benefits when you participate in 401(a) plan proposed by your company. If you decide to make contribution, you will then reduce your income tax liability and also build your retirement savings. You can rollover any of the savings you may be having in another 401 plan of some other company offered to you. You can rollover these funds into an IRA, 457 plan or 403(b) plan if you change our job. Any pre tax contributions are not considered for income taxes until you withdraw from the account. All the earnings in this account will add on deferred tax basis. If 457 plan is offered by your employer, you can participate in that plan also while still making contributions to the 401(a).

If ICMA-RC administers your 401(a) plan then you can have some extra benefits and you may face no restrictions if you decide to reallocate your investments. Here you have no restrictions of any minimum investments and your designated beneficiary will get the entire amount in case of your death.

You must always remain aware of the restrictions your employer could have. Some may have compulsory contributions. With plan 401(a), you are at once vested with contributions and earnings. Just you must be aware of limits of contribution each year. You will have to bear penalties if you fail to adhere to withdrawal and contribution rules.

401(A) Plans - Cash Purchase Plan Explanation

By: Michael Miller

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