Defined Contribution Plan

Since their introduction in the early 1980s, defined contribution (DC) plans, which include 401(k)s, have all but taken over the retirement marketplace. Roughly 84 percent of Fortune 500 companies offer DC plans rather than traditional pensions.

The 401(k) plan is the most ubiquitous DC plan among employers of all sizes, while the similarly structured 403(b) plan is offered to employees of public schools and certain tax-exempt organizations, and the 457(b) plan is most commonly available to state and local governments.

The contribution limit for each plan is $19,500 in 2020 ($26,000 for those age 50 and over).

Many DC plans offer a Roth version, in which you use after-tax dollars to contribute, but you can take the money out tax-free at retirement. “The Roth election makes sense if you expect your tax rate to be higher at retirement than it is at the time you’re making the contribution,” says Littell.