401(a) vs. 401(k): What's the Difference?

Interested in investing in your retirement? You know you should be socking money away for your golden years, but you need to understand the savings vehicle your employer offers. The 401(k) plan, which for-profit employers offer, is a popular way to save by directing a portion of every paycheck into this retirement fund. Some companies will even match your contributions up to a certain percentage of your salary. But there’s also the 401(a) plan to consider. Government employers and non-profits typically provide this retirement plan. While the two plans are similar in their goals, they differ in significant ways.

For help with your own retirement goals, consider working with a financial advisor.

401(a) vs. 401(k): Main Differences

There are some key distinctions between 401(a) and 401(k) plans. The type of retirement savings plan you’re able to choose depends largely on the type of employer you have. For-profit companies or corporate employers offer 401(k) plans to their eligible employees, while government employers, non-profit organizations and educational institutions typically offer 401(a) plans. Because more people work at for-profit companies than non-profit ones, a wider range of people use the 401(k) plan.

In the 401(a) vs. 401(k) comparison, there is also a contrast between which employees can participate in the plans and how much they can contribute. The 401(k) plan is equally available to every full-time employee within a company. The 401(a) plan, on the other hand, is only offered to specific employees as incentive for them to continue their work within the organization.

With a 401(k) plan, an employee can decide how much money he or she would like to contribute to the retirement savings account. Employees, thus, invest a desired percentage of their paycheck, before taxes, into a 401(k). By contrast, with a 401(a), the employer sets contribution limits.

Beyond employee eligibility and employee contribution limits, the two types of plans differ in whether the employers must contribute money to them and how. For the 401(a) plan, the employer must make financial contributions to the plan.

However, employee contribution isn’t always mandatory. It can also be voluntary. By contrast, with a 401(k), an employee will contribute only if there’s a company match policy. In this situation, the employer puts in money to the 401(k) equal to what an employee does up to a certain percentage of his or her salary.

401(a) vs. 401(k): Eligibility

A 401(a) plan is typically offered by government employers, public schools, universities and certain nonprofit organizations. Eligibility is determined by the employer, which may require employees to meet specific criteria such as job classification, length of service or full-time status. In many cases, participation is mandatory for eligible employees rather than optional.

A 401(k) plan is more commonly offered by private-sector employers. Eligibility rules are still set by the employer, but they tend to be more standardized, often requiring employees to reach a certain age and complete a minimum period of service. Unlike many 401(a) plans, participation in a 401(k) is usually voluntary.

Section 410(a)(1) of the Internal Revenue Code mandates that an individual must be at least 21 years old or have completed a certain tenure at the company sponsoring the plan to be eligible for a 401(a) or a 401(k). That length of time is one year for 401(k) plans and two years for 401(a) plans.

401(a) vs. 401(k): Taxes

An investor creates a plan for retirement.

Contributions to 401(a)s are made on a before or after-tax basis. But there’s also an additional tax-advantaged feature to participating in such a retirement savings plan. Employees who voluntarily contribute to their 401(a)s, 401(k)s and other IRS-qualified retirement plans may also qualify for tax credit.

You’re eligible to receive the credit as long as you’re 18 or older, you’re not a full-time student and you’re not claimed as a dependent on someone else’s return. The amount of tax credit you can receive is either 50%, 20% or 10% of your retirement plan contributions up to $2,000. The credit you receive will depend on your adjusted gross income.

Contributions to 401(a)s and 401(k)s

The 401(a) vs. 401(k) comparison extends to contributions.

Contributions to a 401(a) plan can be either mandatory or voluntary, depending on the structure of the plan. Employers decide whether these contributions are made on a pre-tax or post-tax basis. While employers are required to contribute to the plan, eligible employees may have the option to make voluntary contributions.

Employers also have the authority to require employees to contribute to their 401(a) accounts. When contributing to an employee’s plan, employers have several options:

They can provide a fixed amount
They can match a specific percentage or amount of the employee’s contributions
They can contribute a predetermined dollar amount

If an employee chooses to make voluntary contributions, both the contributions and the earnings on those contributions are fully vested immediately. This means the employee has full ownership of these funds and the associated benefits from the outset.

In contrast, a traditional 401(k) plan gives employees the flexibility to determine their contribution amounts. One significant advantage of a 401(k) is its tax benefits. Employees can allocate a portion of their wages to their 401(k) accounts before taxes are deducted, reducing their taxable income. They can decide how much of their pre-tax income to contribute.

However, withdrawals from a traditional 401(k) during retirement are subject to taxes. Another option, the Roth 401(k), offers a slightly different tax structure. With a Roth 401(k), contributions are made after taxes, but qualified withdrawals in retirement are tax-free.

As of 2024, employees can contribute up to $23,000 annually to a 401(k). Employees can contribute up to $69,000 for a 401(a). These numbers increase to $23,500 and $70,000 in 2025.

Who Offers 401(a) and 401(k) Accounts?

Businesses and private-sector employers offer 401(k) plans to their employees. Brokerage companies also provide 401(k) plans on behalf of employers. In addition, payroll providers, such as Gusto or ADP, can also offer employers 401(k) plans. Online brokerage companies such as Charles Schwab and Motif offer individual business owners these plans.

As mentioned earlier, certain employers like government agencies, educational institutions and non-profit organizations offer 401(a)s to their employees.

How to Open a 401(a) or 401(k) Account

Both 401(a) and 401(k) plans are employer-sponsored, so the process begins with your workplace. If your employer offers one of these plans, eligibility details and enrollment instructions are typically provided through human resources or an employee benefits portal. You generally can’t open either type of account on your own outside of an employer.

Before enrolling, take time to review the plan’s rules and features. This includes contribution requirements, employer matching policies, vesting schedules and available investment options. Understanding these details helps you make informed decisions about participation and contribution levels.

Enrollment usually involves completing an online or paper form that confirms your participation and elections. For a 401(k), you’ll typically choose a contribution percentage and investments. For a 401(a), contributions and participation may be set by the employer, with fewer decisions required from you.

Once enrolled, your contributions are invested according to the options offered in the plan. Many plans provide diversified mutual funds or target-date funds designed to simplify investing. Choosing investments that align with your time horizon and risk tolerance is key to long-term growth.

Bottom Line

The main difference between a 401(a) and a 401(k) comes down to who controls eligibility and contributions. A 401(a) is typically more employer-directed, with mandatory participation and preset contribution rules, while a 401(k) offers employees greater flexibility and choice. Understanding how each plan works can help you make better retirement planning decisions and ensure you’re taking full advantage of the benefits available through your employer.

Tips for Retirement

A financial advisor can help you with your retirement savings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Analyzing 401(a) vs. 401(k) pros and cons? Determine your financial goals and the span of time over which you hope to complete them. Try utilizing our retirement calculator to help with planning.
Keep in mind that these contribution plans have yearly limits. It’s important that you’re familiar with them when deferring portions of your wages.