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DC Plan Types: Rounding Up Retirement Plans
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With a defined contribution (DC) plan, you, and sometimes your employer, contribute money to your specific retirement account. In most cases, you are responsible for determining how much to contribute and how to invest those contributions among the available investments in your plan. The value of your nest egg at retirement depends on the level of your contributions and your investing prowess.
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Within the DC plan universe, there are a number of different plans. At first they may seem fairly indistinguishable. But when you look at them closely, clear differences emerge.
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The variety of offerings ensures that most employers can find a plan that suits their needs. Increasingly, in fact, companies are opting for two DC plans instead of one, striving for a combination of features that benefits company and employee alike. For example, a business might offer a 401(k) as a principal savings plan and then add profit-sharing to provide an incentive for increased productivity.
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One major difference is that some plan types rely on employer contributions and others rely mainly on employee contributions. Within each of those broad categories, other distinctions can be made, for example, between a plan that allows employees to make pre-tax contributions and ones that only allow post-tax contributions.
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The links to articles below provide an overview of five common DC offerings:
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1. Money Purchase Plans
2. Profit-Sharing Plans
3. 401(k) Plans
4. 403(b) Plans
5. 457(b) Plans
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In addition to describing the plans, the articles highlight how similar and different they are in several key respects.
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