401(k) plan: a plan that allows employees to contribute a portion of their pretax salary to a tax-deferred retirement plan, allowing the contributed funds to grow free of taxes until the money is withdrawn. Many companies encourage participation in the plan by matching employee contributions. Contributions can be invested in a variety of investment vehicles.
403(b) plan: a plan that allows employees of nonprofit or educational organizations to contribute a portion of their pretax salary to a tax-deferred retirement plan, allowing the contributed funds to grow free of taxes until the money is withdrawn. Many companies match employee contributions. Contributions can be invested in a variety of investment vehicles.
SIMPLE IRA: a plan for small organizations that allows employees to contribute on a pretax basis, and requires the employer to make either matching contributions or a non elective contribution for all eligible employees. These contributions are held in a special Individual Retirement Account (IRA) known as a SIMPLE IRA.
Simplified Employee Pension (SEP) IRA: a pension plan for owners of small companies in which the employer contributes to an Individual Retirement Account (IRA) on behalf of the employee. Employees do not benefit from making pretax contributions.
Profit-sharing plan: a type of defined contribution plan funded with discretionary employer contributions and often tied to company profits.
Defined benefit plan: a tax-deferred company retirement plan, such as a pension, in which the benefit to participants is defined in advance, based on criteria such as salary history and years of service, and in which the employer bears the investment risk.
Defined contribution plan: an individual account plan, such as a 401(k), that provides a benefit based solely on the amount contributed to the participant’s account plus or minus any income, expenses, gains and losses, and forfeitures that may be allocated to the account.
*Premature withdrawals may be subject to IRS penalties.