There are several different types of defined contribution retirement accounts that employers can provide to their employees as a benefit - the most common being the 401k. But similar plans that are also part of the defined contribution family include 403(b)s, 457s, and Thrift Savings Plans.
Defining defined contribution plans
A defined contribution plan is simply a retirement account that your employer provides or supports. They're named as such because you make contributions to the accounts in an effort to save for your retirement. (Note: They may also be referred to as your company's “savings plan.”)
But despite what these types of plans are called, there basically isn't too much difference between them - other than those who may be able to use them. Here's a quick snapshot of the four primary defined contribution plans available and who can take advantage of such plans.
The 401(k):
This commonly known retirement account is a benefit that companies typically offer to employees as a way to set aside tax-deferred contributions for retirement.
The 457:
These plans are meant to help employees of public schools, colleges, universities, charities, state governments, local governments, and other tax-exempt entities that fall under section 501(c) of the IRS code, save for retirement.
The 403(b):
These retirement accounts are primarily for employees of public education entities and nonprofit organizations that fall under section 501(c)(3) IRS tax code. This type of plan may be offered alone, or in addition to a defined benefit pension plan.
The Thrift Savings Plan or TSP:
These retirement plans are sponsored by the federal government rather than a private employer, and are primarily offered to federal employees.
If you want to learn more about the various types of retirement accounts, as well as how to save for retirement, visit the Protective Learning Center.
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