Defined Contribution Plan

A Defined Contribution Plan is a retirement savings plan where both employees and employers contribute a set amount or percentage of salary to individual accounts. The final retirement benefits depend on the total contributions made and the investment growth over time. Unlike Defined Benefit Plans, which promise a specific payout at retirement, the payout in a Defined Contribution Plan can vary based on investment performance. Common examples include 401(k) and 403(b) plans. These plans empower individuals to take charge of their retirement savings, but they also carry investment risks.