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What is a Defined Contribution Plan?

Profit Sharing and 40 l (k) plans are part of the family of Defined Contribution plans. In a Defined Contribution plan once the contribution is made by the employer all the investment risk lies with the participant and the plan may allow participants the opportunity to direct their own investments. In 2015 the maximum any participant can receive from all sources in a Defined Contribution plan is $53,000 (plus a $6,000 catch up if age 50 or over). Typically Defined Contribution Plans are used in combination with Defined Benefit Plans and Cash Balance Plans, to maximize the total retirement planning process. Or used as standalone for employers that are younger than their employees.

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