Retirement Planning

What is a Defined Contribution Retirement Plan?

In retirement planning you may hear about a variety of savings plans ranging from 401(k), 457 or even 403(b). But what do these numbers mean and how do they differ?

Defined Contribution Plan Types

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 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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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

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Defined Contribution Retirement Plan

There are many different types of retirement accounts in which to save for a comfortable life after work. This article looks specifically at defined contribution retirement plan - what they are and who may use them. For more information, visit our learning center.

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