Often called DC plans, DC stands for “defined contribution” plan.
The Most Popular Types of Defined Contributions Plans
The most popular DC plans allow for both employee and employer contributions. The most popular types of DC plans are 401k plans (note that a solo 401k falls under the defined contribution type too but it is a plan only for the self-employed) 403b plans, Thrift savings plans (TSPs) and 457b plans.
- 401(k) plans are for employees of private sector companies.
- Thrift savings plans (TSPs) are similar to 401(k) plans and are for employees of the federal government and for the military.
- 403(b) plans (also known as tax-sheltered annuity or TSA plans) are for employees of public schools, tax-exempt employers (e.g., hospitals) and churches.
- 457(b) plans (also known as deferred compensation plans) are for employees of state and local governments. 457(b) plans are also available for certain management employees of tax-exempt employers.
Individual accounts. One of the main characteristic of a defined contribution plan is that while all participants participate in the same plan, each participant has a separate holding account known as an “individual account.” Employee contributions and employer contributions, along with investment earnings, are allocated to each separate individual account. While most defined contribution plan sponsors only allow for investment options such as mutual funds, a solo 401k plan can generally be self-directed into alternative investments such as real estate, notes, tax liens, private equity, crypt currency and metals, as well as equities.