Definition
401(h) Account
A separate sub-account inside a qualified pension or annuity plan used to pay certain retiree medical benefits.
Full definition
A 401(h) account is a separately tracked sub-account within a qualified defined benefit, money purchase, or annuity plan, authorized by Internal Revenue Code Section 401(h). It is used to fund and pay sickness, accident, hospitalization, and medical expenses for retired employees, their spouses, and their dependents.
Why it matters
Because 401(h) accounts sit inside an existing qualified plan, they let employers pre-fund a portion of retiree medical costs on a tax-advantaged basis — but only when the structural rules are followed.
- Must be a separate account within the trust.
- Medical benefits must remain incidental (subordinate) to the retirement benefits.
- Subject to nondiscrimination rules and plan-document requirements.
Related terms
Incidental Benefit Rule
The requirement that 401(h) medical benefits stay subordinate to retirement benefits in the same plan.
Separate Accounting
Mandatory bookkeeping that isolates 401(h) medical assets from retirement assets within the same trust.
Section 401(h)
The Internal Revenue Code section authorizing retiree medical benefit accounts within qualified pension plans.
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.