What is a contribution retirement plan?

A contribution retirement plan is characterized by its voluntary nature, allowing employees to choose to participate and contribute a portion of their earnings toward retirement savings. This type of plan often features potential employer matching, which means that employers may also contribute a certain amount to the employee’s account, usually as an incentive to encourage participation and maximize retirement savings.

The employer matching can significantly enhance the growth of the retirement fund, providing employees with an additional benefit as they save for their future. By opting into a contribution retirement plan, employees take an active role in their retirement savings strategy, making it a crucial aspect of personal financial planning.

This option stands out because it emphasizes individual agency in the retirement planning process, differing from mandatory or fully employer-funded plans, which might not provide the same level of choice or flexibility.