The 401(a) Plans and Rollover Rules (What You Need to Know)
Explore the lesser-known world of 401(a) retirement plans, a close cousin of the more familiar 401(k), designed mainly for government and educational employees. Learn about contributions, investments, survivor benefits, and rollover rules to make informed decisions about securing your financial future through these specialized plans.
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Written By:
Jeff Rose, Finance456® is a Certified Financial Planner™, founder of Finance456, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.
Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor.
While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council.
Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.
My wife worked for a Hospital in Olympia, WA last month working was June 2018. Their 401(a) retirement plan was under Fidelity. Due to military we moved to Texas. She forgot about the plan and we calculating how much retirement and all of the investment she has done so that she can transfer to TSP. Well to our surprise, the money that she invested was taken “forfeiture” in April 2022.
My chronically disabled son is starting a wonderful part-time position (all that he can manage) as a telecommuting center clerk through an NTICentral.org contract with the IRS. The contract is governed by the US DOL’s Service Contract Act regulations which includes a fringe health and welfare benefit ($4.23 per hour) as part of the overall compensations package. This benefit is to be deposited into the National Telecommuting Institute, Inc., Retirement Plan, a tax-deferred 401a plan administered by TIAA-Cref. Participation is mandatory for all NTI-IRS contract employees. The plan notice states that Social Security does not consider this health and welfare benefit taxable wages until withdrawal. Based on income eligibility, my son also receives critical financial subsidy support benefits through Medicaid (MD Dpt. Health and Social Services) and the HUD Housing Choice Voucher Program/HCVP. My question is do Medicaid and HCVP access 401a benefits the same way, eg., not counted as income / assets in eligibility determinations? Medicaid social services and HCVP rent subsidy benefits are crucial to my son’s social services support and housing stability such that their loss sadly may render him financially unable to accept a wonderful job such as this.
I recently left my state job. I was considered a OPS employee (other personal services) which is defined as a temporary worker, although I worked with them for 2 1/2 years, and I’ve known other OPS employees who have been working for 6+ years there. My 401a plan mandated a 7.5% withdrawal from my paycheck in lieu of social security being taken out. There were no employer contributions I know of. I am over 60. I want to withdraw the funds. Is there any way to avoid the 20% federal tax? I appreciate any and all advice, as I’ve read several different articles about this – enough to confuse me.
What if the 401a gains income while leaving the employment, while the account is still in my name, before the 5 years required to be vested.
So, after 5 years does the account become vested account?
Hello. I work for Marton Technologies (govt contractor)and this 401a was involuntarily pushed on us as well. My question is, we get paid every 2 weeks from this company however, they are holding on to our 401a withdrawals for 3 months before depositing them into our retirement accounts? I am trying to research more on this to see if it’s legit for them to hold onto our money for that long. I can see maybe 30 days but 3 months? seems like they are making investments off our money before they give it back to us. Any help with question would greatly be appreciated.
I work for a city municipality government in Florida and nearing retirement, age 66. I am covered by and contribute to a state retirement pension with defined benefits and vested. I am nearing retirement with several thousand dollars in unused vacation accumulated. My employer states that a cash out of the vacation accumulation is not permitted directly to a non-bargaining salaried employee but the employer will, in accordance with the Employee Procedures and Rules Handbook, deposit the distribution into a 401(a). No rules of the 401(a) have been provided by the employer. Is this forced acceptance of a 401(a) permissible by the employer and or IRS rules.
I am age 50 and work for a government agency. My husband is 53 and is disabled from the school system and receives a pension. My retirement plan is a 401(a) and I plan on leaving my job at age 55. Does the “55 rule” apply for 401(a) plans? Can I draw off my 401(a) plan without the 10% penality?
Can I move funds from 401a to 403b while still employed by a company?
You’ll have to check with your employer
I pulled my 401a in my 20s and decided to have 20% withheld for taxes. I received a check for about 113k, for my 10% early withdrawal, how much of it can I offset if possible? I used the money to buy my first home and do
some home remodeling.
Hi Brendan – You’ve got a lot going on there, so my recommendation is to check it out with an accountant. $113,000 could be a large tax bill.
I have a 401a plan at work. If I were to leave my current employer and begin working with an employer who offers a 457b plan, could I roll the 401a balance to the 457b (assuming the new plan accepts such rollovers)? My reason for doing this would be to retire before 59 1/2 and have full access to the money without the 10% penalty.
Hi Mitchell – You should be able to do the rollover as long as the new employer allows it. If not, why not do a roth IRA conversion, and set up a Roth IRA ladder?
You will not have full access, as rollover assets will be tracked separately.
Can an employer refuse to give you your 401a?
Hi Daniel – The can put rules in place governing when the money can be withdrawn. You’ll have to find out what the specific rules are in you plan. They can vary from plan to plan.
I cashed my 401a early do to termination.at the time it was 10000 I am a single mom with 1 dependent .I make 15000 a year will I get any taxes back when I file ?
Hi Jennifer – Only if you had withholding on the cash out, and your actual tax liability is lower than expected.
Yes. I get a nice refund every yr. Because my tax rate is like 12% not the 20% they withhold plus your dependant.
I have a 401(a) plan that has been fully funded by my former employer with pretax contributions. It is a defined benefit pension plan. Since my retirement the balance has continued to earn “interest credits” quarterly. I turned 70 in Dec., 2017 and my participation in the plan must end no later than April 1st of the year following the year I turn 70 1/2. So, by Apr. 1, 2019 for me. The record keeper seems to know very little about the plan rules. Their CSR told me she didn’t think I could take an RMD from the plan without also simultaneously initiating one of the total plan balance distribution options (lump sum, annuity, rollover to another qualified plan or IRA). What I want to do is take an RMD in Dec., 2018, leave the balance in the plan until April 1, 2019, take another RMD and move the remaining balance to an existing direct rollover IRA.
I’m hoping you can tell me if the record keeper is correct or alternately, if I can proceed as I would like with RMDs taken in 2018 and 2019? Thank you!
Hi Ken – The record keeper sounds confused, so you should talk to a manager and get more specific information. Failing that, get a copy of the plan documents and see what they say. Yours is a defined benefit pension so the rules are probably different, and they’ll be specified in the plan documents.
hello
I worked for the electricians union for 10 years and recently transferred to a different union. The administrator is refusing to allow me access to my money even though we were fully vested right away. they also state in your wage that 20% goes into this account. Isn’t there Rules that prevents previous employers from withholding money from you?
Hi Kyle – I’ve heard “stories” of this happening, but never anything official. There may be language in the plan that prevents you from accessing the funds until you reach a certain age, or maybe limited payout options. If you’re concerned, I’d discuss it with a lawyer to see what your options are. But if you do, make sure you bring your plan documents with you, otherwise the lawyer will have nothing to go on.
Hi –
My employer recently switched to a 401a plan and I have some W-2 prep questions..
For tax reporting, I understand 401a contributions, both the employee and employer portions are excluded from box 1 on W-2’s, but should either portion be included in box 3 (social security) and box 5 (medicare wages), we’re in CT by the way? Also should they be reported in box 12 or 14, or are 401a contributions excluded from W-2’s all together? Lastly, with a 401a plan, would we be required to check box 13 (retirement plan) on the W-2’s?
Thanks!
Hi Matt – You shouldn’t be worried about how the 401a will be reported on the W2, that’s your employer’s job. Correct that the 401a will be deducted from wages in Box 1, but not Boxes 3 and 5. As to the other boxes, it’s up to your employer. I’d ask them how they plan to report it.
I am 70 1/2 years old, still working for a hospital and have a 401A retirement. I understand I have to take the RMD, however my question is, am I able to take a partial dispersement of my retirement and rollover the remainder into a qualified IRA? Thank you. SueAnn
Hi SueAnn – You should be able to do the rollover. But you won’t be able to do the rollover with the RMD distribution.
Hello,
I am considering withdrwaing about 39k from a 401(a) at work. My contributions are post tax. Current balance is 66k – so it appears that I can only withdraw what I have contributed and any gains. Question is: what part of the withdrawal will be subject to fed income tax? I know ALL of it will be subject to 10% fed penalty and 2.5% CA state penalty but I cannot imagine having to pay taxes on all amount.
Hi Hector – Since the contributions were post tax, you should pay tax only on the amount of the withdrawal that represents employer contributions and investment income in the plan. They’ll do an allocation. If $22k are your contributions, $22k are employer contributions and $22k is income, 2/3 of any withdrawals will be taxable (the employer contributions and the investment earnings), and subject to the penalty if you’re under age 59.5.
Jeff I started a 401a plan with my employer who has since spun off the subsidiary I was working for . Then they told me since I no longer was their employee they were taking their contribution back. Now they say I can’t have my contribution because of an agreement between the previous company and my current employer. Is this legal ?
Hi Chris – You’ll have to discuss this with a lawyer. Which may be worth pursuing if it’s a substantial amount of money.
Hi Jeff,
My employer said I cannot take a distribution OR roll over my 401A funds prior to normal retirement age. Is this not a Federally Regulated Retirement Plan and can the employer set specific rules for this type of account?
Hi Ginny – The IRS and the US Department of Labor regulate retirement plans, but within those regulations they give a lot of flexibility to the employers/sponsors. Your employer may very well have that restriction, even though it isn’t common any more (it used to be with defined benefit plans). You can ask the administrator for clarification but they probably aren’t doing anything they aren’t permitted to do.
I worked for IL executive branch for 22 months ending in 1998 or so. When I quit I cashed out $1300 think I’d never work for state gvmt again. So I have been working for IL for ~6 years and I can buy the 22 month of pension 401A at about $6000. Question is if I pay via check (no xfers) in 2017 will I then get a tax credit for this year. I pay about 15% fed tax but next year that will drop due to Trumps tax plan. So I might as well get $900 back this year vs $600 back next year. How is the $6000 buy back reported and filed so I get the tax credit for 2017. Are my assumptions correct about a lump sum buybacks and taxes ?
JR
Hi Jonathan – I haven’t studied the changes to 401(a) plans that might come as a result of the new tax plan. The ink is hardly dry on the bill yet. But seriously, please check with a tax preparer. There may be other nuances in your personal tax situation that change the outcome.
Can one do a partial conversion from a 401(a) to an IRA?
You can Frank, as long as your 401k plan employer and administrator allow partial distributions.
I have a 401a plan that was started when I was in the Electricians Union. I have separated from the Union for over 6 years now and I would like to rollover my money to a new 401k where I can have a say on what happens to it. I was told that I could never touch this money until retirement age which is still 21 years away. Is there a way to roll this fund over?
Hi Joel – Check with the plan administrator. It really depends on how the plan is set up, and what is permitted. If you can’t, then you can’t. Employers have tremendous flexibility in setting up and administering these plans.
I continue to remain confused on one point. I have a rollover IRA and I understand I cannot do the “backdoor ROTH” without being subject to the pro-rata rule? But I recently learned I have access to a 401(a) (UC DCP) and can do a ROTH conversion from there with after tax dollars. Am I still going to be subject to the pro-rata(?) rule? I would prefer not to roll my rollover IRA into my 403/457 but I will if it is the best way to get access to ROTH since my income precludes normal ROTH contributions. Any help clarifying this for me would be much appreciated.
Hi Annie – Due to the specific nature of your situation, I think it’s best you discuss this with your tax preparer, or at least with your plan administrator. 401(a) plans are fairly uncommon, and the complications can take unexpected turns.
I have a question that I am getting mixed answers on. I am a financial advisor and I have a client that participated in a 401A plan for many years. She retired this year and took a lump sum from her 401A plan into an IRA, as opposed to taking a monthly benefit amount. She is over 70 1/2 years of age. Is she required to take a required minimum distribution this year and if so, what amount is the benefit calculated on since there was technically not a balance as of 12/31 last year?
Hi Mark – I would think not since the IRA had no balance at year end. But she should need to take the RMD’s in future years, since a traditional IRA is not exempt. This is a good theory question, so I strongly recommend that you get other opinions.
I was vested in a public school 401(a) plan many years ago, but was only with the schools for five years. My pension is less than $50 per month, so I am required, now that I am 70 1/2, to either take a lump sum payout or roll the amount into another IRA. I’ve recently read that a charitable contribution can be made directly from IRAs to the qualifying charity (without being distributed to me first), which has tremendous tax benefits, but my 401(a) phone rep says he has never heard of that plan, so it is not an option for me. Is he correct, or do I need to enlighten him with the details of the law and insist? Or is there some reason why my 401(a) would not qualify for the direct distribution to charity?
Hi Ruth – the phone rep is probably not aware of it because it is unusual. But it’s a tax question, so I would consult an accountant to get a solid answer.
What is your experience with 401A and Windfall Elimination Provision. Why would money in a 401A be subject to the WEP upon full retirement?
Hi Elissa – I don’t have direct experience with this. But from what I understand, if the 401A is the result of a government job in which wages were not subject to FICA taxes, it can reduce the benefit you receive from the SSA as a result of other jobs you’ve held where FICA was withheld. I believe it’s to minimize “double dipping”, but I’m really not sure. It’s an uncommon topic since it doesn’t affect most people.
Elissa,
Jeff is correct as far as my understanding as well. If you talk to SSA, they will tell you specifically that it is to prevent “double dipping” as Jeff described.
I have a 401a plan that I started when I was working in the sheet metal workers union years ago now I’m working a non-union job in the first year working there I tried to transfer my 401 a to my new 401K plan which didn’t happen and didn’t go well either with union representative ! Is there any advice how I can get my money transferred from the union pension fund to my retirement fund now ? Any help would be greatly appreciated thanks Rich K.
@Rich Unfortunately, it’s up to the 401k plan administrator if they allow outside retirement plans to be rolled into your current plan.