Definition
A retirement plan where the contributions are defined but the outcome is not: you (and often your employer) put money into an individual account, you choose the investments, and the final balance depends on markets. 401(k) and 403(b) plans are the standard examples.
Why it matters
The shift from pensions to defined contribution plans moved retirement risk from employers to workers. Your contribution rate, investment choices, and fees now determine your retirement, which is exactly why the mechanics are worth learning.
Example
A worker and employer together put $9,000 a year into a 401(k) for 30 years. At 7% average growth the account reaches roughly $850,000; the contributions were defined, the ending balance was up to the markets.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.