Defined Contribution Plans
The most commonly selected retirement plan is a defined contribution.
Often when people think of retirement the term that first comes to mind is “401(k).” Defined contribution plans include other options in addition to the traditional 401(k).
A defined contribution plan is a retirement plan in which the employee and/or the employer contribute to the employee’s individual account under the plan. The vested amount in the account at distribution includes the contributions and investment gains or losses, minus any administrative fees.
Typically, the contributions and earnings are not taxed until distribution. The value of the account will change based on contributions and the value and performance of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans and profit-sharing plans.
Types of Defined Contribution Plans
The most common type of retirement plan due to its flexibility and diversity in approach is a 401K plan. You and your employees can select either before or after-tax Roth contribution options on a per paycheck basis.
A 457 plan is a type of defined contribution retirement plan available to state and local public organizations, but can also be offered by select nonprofit organizations.
The 403(b) defined contribution plan is a unique retirement plan offered by public schools and other select tax-exempt organizations. If you work for or are part of an organization like this a 403(b) plan may be the right fit for you.