401(h) vs 401(k): The Differences Owners Actually Need to Know
Same letter prefix, very different vehicles. A 401(k) is your retirement plan; a 401(h) is a medical sub-account inside a different kind of qualified plan entirely.
Contents
Key takeaways
- 401(k) is a defined contribution retirement plan funded with employee deferrals.
- 401(h) is a retiree medical sub-account inside a qualified pension or annuity plan.
- You cannot add 401(h) to a 401(k); the underlying plan must be a pension/annuity plan.
- Many sponsors run both — 401(k) for retirement savings, DB/CB + 401(h) for retiree medical.
Different plan types entirely
A 401(k) is a defined contribution retirement plan governed primarily by Section 401(k) and related deferral rules. A 401(h) account is a sub-account authorized by Section 401(h) inside a qualified pension or annuity plan — typically a DB or cash balance plan.
Different funding mechanics
401(k) contributions come largely from employee elective deferrals, with employer match. 401(h) contributions come from employer funding determined by the plan's actuary, subject to the incidental-benefit limit.
Different distributions
401(k) accumulates retirement savings the participant draws on in retirement, taxed as ordinary income. 401(h) pays defined retiree medical benefits — generally not taxable to the retiree when used for qualified medical expenses, subject to plan terms.
Can they coexist?
Yes — and frequently do. A common owner-led structure is:
- 401(k) plan for broad employee retirement savings.
- Cash balance or DB plan stacked on top for accelerated owner contributions.
- 401(h) sub-account inside that DB/CB plan to formalize retiree medical funding.
Frequently asked questions
Availability, tax treatment, and plan design depend on the facts and circumstances of the employer, plan document, participant group, and applicable law. 401h.com provides general educational information only — not tax, legal, actuarial, investment, or ERISA advice. Consult qualified tax, legal, actuarial, and plan professionals.
401h.com Editorial
401h.com
The 401h.com editorial team publishes plain-English explainers on 401(h) retiree medical benefit plans. Educational only — not tax, legal, actuarial, investment, or ERISA advice.
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