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Defined contribution plan

A retirement plan with an individual account worth what goes in plus what it earns, such as a 401(k), a profit-sharing plan or a SEP IRA.

In a defined contribution plan, your benefit is your account: contributions plus investment gains and losses. The tax code calls it an individual account plan (IRC 414(i)). A 401(k), a profit-sharing plan and, for limit purposes, a SEP IRA are all defined contribution plans.

The limit is on what goes in. For 2026, total additions to a person's defined contribution accounts with one employer are capped at $72,000 under IRC 415(c), plus any catch-up contribution. The figure is the same whether you are 35 or 60.

A cash balance plan looks similar because it also shows an account, but it is a defined benefit plan. Its account is a promise the plan must fund, the contribution is set by an actuary, and the limit is on the benefit paid out. The two kinds can run side by side, subject to the combined deduction limit. See cash balance plan vs Solo 401(k) and cash balance plan vs SEP IRA.

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