401(a) Contributions
To begin contributing to your 401(a) plan, you should contact your employer and request the enrollment packet. If you have enrolled previously, you may be able to resume contributions by completing the 401 Plan Amount of Contribution Change Form and submitting the completed form to your employer, but you should confirm this with your employer prior to submitting any paperwork. For additional assistance, please contact ICMA-RCs Investor Services at 1-800-669-7400.
Types of Contributions
Your 401 plan may allow contributions to be made by your employer, you, or both.
Your contributions may be made on either a mandatory or a voluntary basis. The employer decides on the method of participant contribution, as well as whether participant contributions will be made on a pre-tax (picked-up contributions) or an after-tax basis.
The most common method our clients use is direct employer contributions with mandatory participant contributions with the “pick-up provision,” Under this scenario; mandatory employee contributions are made on a pre-tax basis. Your plan may also allow you to make voluntary contributions on an after-tax basis. These voluntary after-tax contributions are limited to 25 percent of your compensation.
Employer contributions to your 401 plan may be made under one of the following methods:
- The employer may contribute a fixed dollar or percentage amount, either with or without a required employee contribution.
- The employer may match a fixed percentage of employee contributions.
- The employer may match the participant contribution within a given range (i.e. a variable employee match).
Contribution Limits
The maximum amount that may be contributed each year to your 401 plan account is 100 percent of your gross income after subtracting any Section 414(h) picked-up contributions (mandatory employee contributions made with pre-tax dollars), not to exceed an annual dollar limit (shown below) in place for the year. This maximum includes both your contributions and your employer's contributions to your account. The dollar limits are:
| Year | Contribution Limit |
|---|---|
| 2009 | $49,000 |
| 2010 | $49,000 |
In addition, participants may contribute to a 457 plan as well as to a 401(a) plan.
You are always fully vested in any of your own employee contributions. Your employer may establish a vesting schedule for employer contributions to the plan. This vesting schedule determines when you acquire “ownership” of the employer contributions (and associated earnings) in your plan. When you separate from service, the vesting schedule will determine how much of your account is “owned” by you and may be paid to you.
All investment earnings in your 401(a) Plan account accrue on a tax-deferred basis. You will not pay income tax on pre-tax contributions or earnings until you take a distribution from your account.
Assets in the plan are held in a tax-favored trust for the exclusive benefit of participants and their beneficiaries.