A Defined Contribution plan is a type of retirement plan where the contributions made by the employer or employee are defined, but the final retirement benefit is not guaranteed.
In a DC plan, the contributions are invested in various options chosen by the participant and the benefit depends on factors like the amount contributed and investment performance.
401(k) Plans, 403(b) Plans, 457(b) Plans, Thrift Savings Plan, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA are the types of DC plan.
In a DC plans, the employer, employee, or both make regular contributions of specified amounts. Eligibility for plan can vary depending on the specific plan and employer's policies.
DC plans have annual contribution limits set by the IRS to ensure fairness & maintain tax advantages associated with these accounts. Contribution limits can vary based on type of plan.
DC plan provides individuals with greater control and flexibility over their retirement savings, allowing them to choose investment options and contribute according to preferences.