Defined Contribution Plan
An individual account plan whose payout depends on contributions and returns.
What is Defined Contribution Plan?
401(k), 403(b), profit-sharing, and money purchase plans. Each participant has an account; the eventual benefit is whatever it grows to, so the employee bears the investment risk. Contributions may be vested immediately or on a schedule.
Defined Contribution Plan: a worked example
Two employees contributing identically can retire with very different balances depending on their fund choices.
More terms in Retirement Plans, Accounts & Trading
IRA Rollovers vs. Transfers
60-day rollovers are limited to one a year; direct transfers are unlimited.
10% Early Withdrawal Penalty & Exceptions
Distributions before 59 1/2 cost 10% extra, unless an exception applies.
Solo 401(k)
A 401(k) for a self-employed owner with no employees other than a spouse.
Defined Benefit Plan
A pension promising a specific benefit; the employer bears the investment risk.
403(b) Plan
A salary-deferral plan for public schools and 501(c)(3) nonprofits.
457 Plan
Deferred compensation for state and local government employees.
SIMPLE IRA
A low-cost plan for employers with 100 or fewer employees.
SEP IRA
An employer-funded IRA plan, up to 25% of compensation.
All Retirement Plans, Accounts & Trading terms · Full glossary