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Defined Contribution Plans

Defined Contribution (DC) plans are retirement savings plans in which employees and employers contribute money to individual accounts. The ultimate retirement benefit in a DC plan depends on the contributions made and the investment performance of those contributions. Here are some common types of Defined Contribution plans:

401(k) Plan

A 401(k) plan is one of the most popular DC plans offered by employers in the United States. Employees contribute a portion of their salary on a pre-tax basis, and employers often match a portion of those contributions. The funds are typically invested in a selection of mutual funds or other investment options chosen by the employee.

403(b) Plan

A 403(b) plan is similar to a 401(k) but is typically offered by non-profit organizations, schools, and government entities. Employees can contribute a portion of their salary on a tax-deferred basis, and some employers may provide matching contributions.

457(b) Plan

A 457(b) plan is offered to employees of state and local governments, as well as some non-profit organizations. Contributions are made on a pre-tax basis, and employees can contribute a significant portion of their salary. Like 401(k) and 403(b) plans, 457(b) plans offer various investment options.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

SIMPLE IRAs are designed for small businesses with 100 or fewer employees. Both employers and employees contribute to these plans. Employers must either match employee contributions up to a certain percentage or make non-elective contributions on behalf of employees.

SEP IRA (Simplified Employee Pension IRA)

SEP IRAs are often used by self-employed individuals and small business owners. Employers make contributions to SEP IRAs on behalf of their employees, and the contribution limits are generally higher than those for traditional IRAs.

Profit-Sharing Plan

In a profit-sharing plan, employers make discretionary contributions to employees' retirement accounts based on the company's profitability. Contributions are typically tied to the company's performance, and there is no requirement to make contributions every year.

Money Purchase Plan

Money purchase plans require employers to make fixed, regular contributions to employees' retirement accounts. These contributions are typically a percentage of each employee's salary. The plan's funding is predictable, and employees may not have the option to make their contributions.

Employee Stock Ownership Plan (ESOP)

ESOPs are unique DC plans in which the primary investment is the employer's company stock. Employees become partial owners of the company through these plans, and their retirement benefits depend on the company's performance.

Defined Contribution Pension Plan (DCPP)

A DCPP is a type of pension plan in which both employees and employers make regular contributions to individual accounts. The final retirement benefit is based on the total contributions and investment returns.

Thrift Savings Plan (TSP)

The TSP is a retirement savings plan for federal employees and members of the uniformed services. It operates similarly to a 401(k) plan, with contributions made on a pre-tax or after-tax basis, and offers a range of investment options.

Each of these Defined Contribution plans has its own features, contribution limits, and eligibility criteria, making them suitable for different types of employers and employees. It is important to understand the different options that are available, call us to schedule an appointment to discuss each in more detail.

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