Defined contribution plan examples include the 401(k), the 403(b), the governmental 457(b), the SEP IRA, and the SIMPLE IRA. Each gives you an individual retirement account funded by your own salary deferrals, your employer’s contributions, or both, with your final balance depending on what goes in and how the investments perform. Nobody promises a specific monthly check at the end. That risk sits with you, which is what separates every plan on this list from a traditional pension.
The plans differ in who can offer them, whether employees can defer their own pay, how much can go in each year, and what happens if you pull money out early. Here is how each one works.
The 401(k)
The 401(k) is the most common defined contribution plan in the U.S. and is offered primarily by for-profit employers. You choose how much of your paycheck to defer, and most plans offer some level of employer matching.
You’ll usually pick between two contribution types, and many plans let you split between both. Traditional 401(k) contributions come out of your paycheck before income tax, reducing your taxable income now; you pay tax later when you withdraw in retirement. Roth 401(k) contributions are made with after-tax money, and qualified withdrawals in retirement, including all investment growth, come out tax-free.
For 2026, the employee salary deferral limit is $24,500. Total annual additions to the account, counting both your deferrals and any employer contributions, cannot exceed $72,000, and only compensation up to $360,000 counts toward the calculation. If you participate in 401(k) plans through two employers in the same year, the $24,500 ceiling applies to your combined deferrals, not per plan.
Workers 50 and older can make catch-up contributions on top of the standard limit:
- Ages 50–59 and 64+: an extra $8,000, for a total employee deferral of $32,500.
- Ages 60–63: an enhanced catch-up of $11,250, for a total deferral of up to $35,750. This higher amount comes from the SECURE 2.0 Act and only applies if your plan has adopted it.
Employer matches are usually structured as a percentage of what you defer, up to a share of your pay. A common formula is a 50% match on the first 6% of salary. On $80,000 in pay, deferring 6% ($4,800) would bring in another $2,400 from the employer. The match is subject to the plan’s vesting schedule, so contributing at least enough to capture the full match matters, but so does staying long enough to keep it.
The 403(b)
The 403(b) is the nonprofit and public education equivalent of the 401(k). Eligible employers include public schools, state colleges and universities, tax-exempt organizations under IRC Section 501(c)(3), and churches. Investment menus often include annuity contracts alongside mutual funds, a holdover from when these plans were called tax-sheltered annuities.
Employee deferral limits match the 401(k) exactly: $24,500 for 2026, with the same age-50 and age-60-through-63 catch-up rules.
The 403(b) has one feature the other plans don’t. Employees with at least 15 years of service with the same qualifying employer can contribute an additional $3,000 per year under the 15-year rule, up to a lifetime cap of $15,000. It’s separate from the age-based catch-up and only applies to employees whose prior contributions have been relatively low.
The Governmental 457(b)
State and local government employees often save through a 457(b) plan. The 2026 employee deferral limit is $24,500, with the same catch-up schedule for workers 50 and older.
Two things make the 457(b) distinctive. First, there is no 10% early withdrawal penalty on distributions taken before age 59½. You’ll still owe income tax, but the penalty doesn’t apply regardless of your age when you separate from service. Second, there’s a three-year catch-up: in the three years before the plan’s designated normal retirement age, you can contribute up to double the standard deferral limit.
A government employee who also has access to a 401(k) or 403(b) through a separate employer can max out both plans, because the 457(b) deferral limit is tracked independently from the 401(k)/403(b) limit.
The SEP IRA
The Simplified Employee Pension is built for small businesses and self-employed individuals who want minimal paperwork. Only the employer contributes. Employees cannot make their own salary deferrals into a SEP.
The employer can contribute up to 25% of each eligible employee’s compensation, capped at $72,000 for 2026. Contributions are discretionary, so the percentage can change year to year, and the employer can skip a year entirely. Whatever percentage the employer chooses in a given year must apply equally to every eligible employee.
The SIMPLE IRA
The Savings Incentive Match Plan for Employees is for businesses with 100 or fewer employees that don’t maintain another retirement plan. Unlike the SEP, employees can defer their own salary. The employer is required to contribute every year using one of two formulas:
- Matching: a dollar-for-dollar match on employee deferrals up to 3% of compensation.
- Non-elective: a flat 2% of compensation for every eligible employee, whether or not they contribute.
The employee deferral limit for 2026 is $17,000, lower than the 401(k) ceiling. The standard catch-up for workers 50 and older is $4,000. Participants aged 60 through 63 can defer an extra $5,250 under the SECURE 2.0 enhanced catch-up.
SIMPLE IRAs carry a penalty trap the other plans don’t. If you withdraw money within the first two years of participating, the early withdrawal penalty jumps from 10% to 25%. After two years, the normal 10% penalty for withdrawals before age 59½ applies.
At a Glance
- 401(k): for-profit employers; $24,500 employee deferral; $72,000 total additions.
- 403(b): schools, nonprofits, churches; same limits as the 401(k); adds a 15-year service catch-up.
- Governmental 457(b): state and local government; same limits; no 10% early withdrawal penalty; three-year pre-retirement catch-up.
- SEP IRA: small business and self-employed; employer-only; up to 25% of pay, capped at $72,000.
- SIMPLE IRA: businesses with 100 or fewer employees; $17,000 employee deferral; mandatory employer contribution; 25% penalty in the first two years.
Rules That Apply Across the Plans
Vesting
Your own contributions are always vested immediately. Employer contributions typically follow a vesting schedule. Cliff vesting gives you nothing until you hit a milestone (up to three years for matching contributions), then 100% at once. Graded vesting phases you in, often starting at 20% after two years and reaching 100% after six. Leave before you’re fully vested and you forfeit the unvested employer portion; the money you contributed always leaves with you.
Rollovers
Vested funds are portable. You can move them directly to a new employer’s plan or to an IRA through a direct rollover, and no tax is owed on the transfer. If you take the check yourself instead (an indirect rollover), your old plan must withhold 20% for federal taxes even if you plan to redeposit the full amount within the 60-day window. To avoid tax on that withheld portion, you’d have to make up the difference from your own pocket when you redeposit.
Early Withdrawals
The standard age for penalty-free withdrawals is 59½. Take money out earlier and you generally owe income tax plus a 10% penalty. Exceptions to the 10% penalty include:
- Separation from service in or after the year you turn 55, for 401(k) and 403(b) plans (the Rule of 55). It doesn’t apply to IRAs.
- Total and permanent disability.
- Distributions to your beneficiaries after your death.
- A series of substantially equal periodic payments based on your life expectancy.
- One personal emergency withdrawal of up to $1,000 per year, if the plan has adopted this SECURE 2.0 provision. Another emergency withdrawal isn’t available for three years unless you repay the first.
Governmental 457(b) plans are the outlier, with no 10% penalty at all. And SIMPLE IRAs go the other direction during your first two years of participation, with a 25% penalty instead of 10%.
Required Minimum Distributions
You can’t leave money in a tax-deferred retirement account forever. Once you reach age 73, the IRS requires annual withdrawals called required minimum distributions. The age of 73 applies to anyone who turned 72 after December 31, 2022, and turns 73 before January 1, 2033. Starting in 2033, the RMD age rises to 75.
If you’re still working and don’t own more than 5% of the company, most employer plans let you delay RMDs from that employer’s plan until you actually retire. Roth 401(k) accounts no longer require distributions during the owner’s lifetime, bringing them in line with Roth IRAs.
Missing an RMD triggers an excise tax of 25% of the shortfall. If you fix it within the correction window (generally by the end of the second year after the year the distribution was due), the penalty drops to 10%.