A defined contribution plan is a retirement savings plan where you (and often your employer) make regular contributions to an individual account in your name, but there's no guarantee about how much income you'll have in retirement—that depends on how much was contributed and how well the investments perform. The most common example is a 401(k) plan, though 403(b)s and 457(b)s follow the same basic structure.

Here's what makes it a "defined contribution" plan: what's defined is what goes in (the contributions), not what comes out (the benefits). Your employer might contribute 3% of your salary or match your contributions up to a certain amount, and you control how those contributions are invested from the options provided. Your eventual retirement income depends entirely on the total contributions made and the investment returns your account earns over time.

Defined contribution plans shifted the responsibility—and risk—of retirement planning from employers to employees. Unlike traditional pension plans (defined benefit plans), where the employer promises specific monthly payments for life, with a defined contribution plan, you're responsible for contributing enough, investing wisely, and making your savings last throughout retirement. The upside is portability—your account goes with you when you change jobs—and control over your investment decisions. The downside is that you bear all the investment risk and longevity risk, which is why understanding how to manage these accounts is crucial.