Defined Contribution Plan
A defined contribution plan is a retirement plan where contributions are made to individual accounts, with the final benefit depending on contributions and investment performance.
Exam Tip
Employee bears risk in defined contribution. 2025 total limit is $70,000.
What is a Defined Contribution Plan?
A defined contribution plan has individual accounts for each participant. The retirement benefit depends on contributions and investment performance.
Types
| Plan Type | Eligible Employers |
|---|---|
| 401(k) | For-profit |
| 403(b) | Nonprofits |
| 457(b) | Government |
| SEP IRA | Any business |
| SIMPLE IRA | Small businesses |
2025 Total Limit
$70,000 (employee + employer combined)
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Defined Benefit Plan (Pension)
A defined benefit plan promises a specified monthly benefit at retirement, typically based on salary and years of service, with the employer bearing all investment risk.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.
403(b) Plan
A 403(b) plan is a tax-advantaged retirement savings account for employees of public schools, tax-exempt organizations, and certain ministers, allowing pre-tax contributions up to $23,500 in 2025.
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