What are defined contribution plans?
- What are defined contribution plans?
- How do defined contribution plans work?
- How does the money get invested?
- What tax benefits do 401(k)s offer?
- Do I have to contribute to my plan?
- Why is a 401(k) such a good deal?
- When do I pay tax on a 401(k)?
- How is a Roth 401(k) different?
- What is a matching contribution?
- How does vesting work exactly?
- How much should I contribute to my plan?
- What if I can't invest the maximum right now?
- What if I need the money before I retire?
- What if I leave my job?
401(k)s and similar plans - 403(b)s, 457s and Thrift Savings Plans - are ways to save for your retirement that your employer provides, or "sponsors." You may hear people describe them as "defined contribution plans." That name comes from the fact that you make contributions to the plans - that is, you put your own money into them. (You may also hear your employer describe the plan simply as "The Company X Savings Plan.")
Here's how they break down:
- 401(k)s are the version that corporations offer to their employees. (Roth 401(k)s are a subgroup that has different tax treatment.)
- 403(b)s are for employees of public education entities and most other nonprofit organizations.
- 457s are for state and municipal employees, as well as employees of qualified nonprofits.
- Thrift Savings Plans (TSPs) are for federal employees.
401(k) plans are the most common type of defined contribution plan, so they're what you may read and hear about most often. But in fact there are no huge differences between a 401(k) plan and the other defined contribution plans (beyond who can use them, of course).
