A defined contribution plan is a retirement option that lets an employee — and sometimes his or her employer — contribute to their own tax-advantaged account. In most plans, including 401(k), SEP, SIMPLE and traditional individual retirement accounts, contributions and growth in the account are tax-free until the money is withdrawn. In Roth IRAs and Roth 401(k)s, contributions are taxed, but all growth and withdrawals are tax-free.
In all defined contribution plans, investment risks and the potential for gain are concentrated in the worker, not in the employer. Though some employers offer matching contributions to encourage workers to put their money in, the ultimate decision to invest rests with the employee.