What is a defined contribution plan?
A defined contribution retirement plan is one in which your benefit is based entirely on the amount you contribute and the performance of the investments you choose. Contributions may be deducted from your salary before taxes. Check with your employer to find out if your contributions are tax-deferred. Investment returns (both gains and losses) are tax-deferred. They are credited to your account as long as you have money in the plan.
A Defined Contribution (DC) plan is a type of retirement plan where the employer and employee “contribute” to the plan a certain specified percentage of employee compensation each year. These Contributions are held in an employee’s account and invested by the employee. At retirement, the pension benefit payable to the employee is dependent upon the employee’s account, investment earnings, and timing of the retirement or withdrawal.
A defined contribution plan provides for an individual account for each participant. The value of the participants benefit is the sum of contributions made to the account plus or minus any income, expense, gain or loss, and any forfeiture of accounts of other participants. Defined contribution plans include, but are not limited to, the following: a. Money purchase pension plans; b. Target benefit plans c. Profit sharing plans; and d.
