Contributions

• The 401(a) plan is a type of retirement plan that can be funded in a variety of ways. In some cases, the employer funds the entire plan much like a pension. In other situations, the employer can elect to have the plan fully funded by employees. The employer can also elect to create the plan so that both the employer and employees can contribute to the plan equally. This allows both parties to share the burden equally.
  
  

Before or After Tax

• One of the features of the 401(a) is that the employer can choose what type of tax status they want for this retirement plan. The employer can choose whether they want the contributions to be made with before-tax money or after-tax money. This allows them to essentially choose between a traditional retirement account or a Roth retirement account. With the pre-tax contributions, the employee can lower his taxable income by the amount of the contribution. With the after-tax contribution, the earnings from investments are not taxed and then upon retirement, the money is not taxed.
  
  

Investing

• Once the money is put into the plan, the employee can choose what to invest it in. For example, the plan may allow employees to invest in stocks or bonds. Any returns that are earned on these investments are not taxed as they are earned. If the contributions are made on a pre-tax basis, the earnings on the investments will be taxed as it is withdrawn from the account upon retirement of the employee.
  
  

Mandatory Contributions

• One of the key features of this kind of retirement plan is that it can include mandatory contributions. If the employer sets up the plan to include mandatory contributions, employees have to decide whether they want to participate or not. If they choose to participate, their contributions will be automatically deducted from their pay for as long as they work with the company. They cannot choose to change their contribution at any time.