In retirement terminology, the term 401(a) Plan refers to a United States retirement plan which meets the requirements of the Internal Revenue Code�s (IRC) Section 401a. This section of the IRC defines and details the qualification rules for 401a trusts and the laws governing 401(a) plans. A 401(a) Plan is generally established by the employer with a set maximum amount that can be contributed by the employee, employer or both.
For example, a 401(a) Plan allows a person to save a portion of their income for their retirement. They also get to defer tax liability until after they retire, instead paying tax as regular income when the funds are released. This type of retirement plan begins paying out after the employee retires or when they leave employment from their current job. Nevertheless, the Internal Revenue Service or IRS imposes stiff penalties to funds from retirement accounts being withdrawn early, and these funds are immediately subject to a 20% Federal Mandatory Tax withholding. Many such plans offer you the ability to access your retirement funds as a loan, depending on the plan�s restrictions. Funds from 401(a) Plans can be distributed through annuity payments, rollovers or in a lump sum.