ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Defined contribution plans are a type of retirement plan to safeguard employees from financial contingencies they could face in retirement age. 401 (K), 403 (B), 457 plans, 529 plans, and the Thrift Savings Plan are some of their types.

Detailed explanation-2: -A 401(k) Plan is a defined contribution plan that is a cash or deferred arrangement. Employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) plan.

Detailed explanation-3: -Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans and profit-sharing plans.

Detailed explanation-4: -Defined contribution plans come with valuable tax benefits. These may include pretax contributions that reduce an employee’s taxable income-plus potential tax-write offs for the employer-or alternatively, post-tax Roth contributions that give an employee tax-free income in retirement.

Detailed explanation-5: -Due to IRS employer contribution limits, when you sponsor a defined benefit plan there will be additional limits on employer-based contributions to your other plans. However, you could continue to make 401(k) employee deferrals and catch-up contributions to the old plan(s).