Defined-Contribution Plan

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DEFINITION of 'Defined-Contribution Plan'

A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.

BREAKING DOWN 'Defined-Contribution Plan'

There is no way to know how much the plan will ultimately give the employee upon retiring. The amount contributed is fixed, but the benefit is not.

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RELATED FAQS
  1. Who can transfer funds to a Locked-in Retirement Account (LIRA)?

    To transfer funds, LIRA recipients must meet one of a variety of criteria. Only certain individuals are allowed to transfer ... Read Full Answer >>
  2. How do pay-as-you-go pension plans work?

    A pay-as-you-go pension plan is a specific type of pension scheme where the benefits are directly tied to the contributions ... Read Full Answer >>
  3. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Full Answer >>
  4. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>

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