A type of retirement plan sponsored by employers in which the employee makes regular contributions to an individual account. Employers can also make contributions to employee accounts. Unlike a “defined benefit plan” such as a pension, a defined contribution plan does not pay out a specific predetermined amount. The money is invested and allowed to grow; the amount you have at retirement depends on how well your investments perform.
At retirement the money can be withdrawn along with any investment gains; you will pay income tax on the withdrawals. 401(k), 403(b), and 457 plans are all examples of defined contribution plans.
