The 401(k) is today’s most popular retirement plan. Employees may contribute pretax dollars to their plan up to an IRS limit of $18,000 this year, with a Catch Up contribution of an additional $6,000 if the employee will be at least 50 years old by December 31st. The employee may contribute through payroll deductions based on a percentage of qualified income or a flat rate. Many employers provide a matching plan, further encouraging employees to set aside money for retirement.
A 401(a) plan is a money-purchase retirement plan typically offered by government or educational institutions rather than corporations. It is a customized plan, usually offered to key employees as added incentive to stay with the organization. Contributions may be made by the employee, the employer, or both. It is typically a mandatory plan for those select employees, with the employer setting the deferral levels on a pretax basis. Employees may make additional voluntary contributions after-tax.