Question 1

Is a 401(h) the same as a 401(k)?

Accepted Answer

No. A 401(k) is a defined contribution retirement plan. A 401(h) is a separate sub-account inside a qualified pension or annuity plan, designed to fund retiree medical benefits — a fundamentally different structure.

Question 2

Can I open a 401(h) on my own?

Accepted Answer

No. 401(h) accounts only exist as sub-accounts inside qualified employer-sponsored pension or annuity plans. There is no individual 'open a 401(h)' the way you'd open an HSA or IRA.

Question 3

Does a 401(h) require a defined benefit or cash balance plan?

Accepted Answer

A 401(h) account must attach to a qualified pension or annuity plan. In practice, that's typically a defined benefit or cash balance plan.

Question 4

Are 401(h) contributions deductible?

Accepted Answer

Employer contributions to a qualified plan, including amounts allocated to a 401(h) sub-account, may receive favorable tax treatment subject to plan design and applicable law. Professional review is required.

Question 5

Can 401(h) accounts pay Medicare premiums?

Accepted Answer

Whether 401(h) accounts may pay specific Medicare-related premiums depends on plan terms and applicable law. Plan design controls.

Question 6

Are there contribution limits?

Accepted Answer

401(h) funding is not driven by a single statutory dollar cap. It is governed by the incidental-benefit rule and the plan's actuarial funding methodology.

Question 7

Who can receive 401(h) benefits?

Accepted Answer

401(h) benefits are designed for retired employees, and may extend to spouses and qualifying dependents based on plan terms and applicable rules.

Question 8

What happens to unused 401(h) assets?

Accepted Answer

Treatment of unused or excess 401(h) assets is governed by the plan document and applicable rules — and is an important plan-design consideration.

Question 9

Are 401(h) plans subject to nondiscrimination?

Accepted Answer

Yes. 401(h) benefits, like other plan benefits, are subject to applicable nondiscrimination rules based on the participant group and plan design.

Question 10

Is this a tax loophole?

Accepted Answer

No. 401(h) is a long-established Code provision with strict structural rules — plan document, separate accounting, the incidental-benefit limit, nondiscrimination, and more.

Question 11

How is a 401(h) administered?

Accepted Answer

Administration is typically handled by the plan's third-party administrator (TPA), actuary, and recordkeeper — coordinated with the plan sponsor and ERISA counsel.

Question 12

Can a 401(h) be added to an existing plan?

Accepted Answer

Often, yes — by amending the qualified plan to add §401(h) provisions, subject to design and rule considerations. Professional review is required.

401(h) questions, answered.

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