Legal Definitions - individual account plan

An individual account plan is a type of employee benefit plan where an employer contributes a certain amount of money to an individual account for each employee. The employee can then decide how to invest the money in the account. The amount of money in the account at retirement depends on the performance of the investments chosen by the employee.

Examples of individual account plans include:

• 401(k) plans
• 403(b) plans
• Individual Retirement Accounts (IRAs)

These plans are called "defined-contribution plans" because the employer defines how much money they will contribute to the employee's account, but the final amount of money in the account is not guaranteed.

For example, if an employer contributes $5,000 to an employee's 401(k) account each year and the employee chooses to invest the money in stocks, the final amount of money in the account at retirement will depend on how well the stock market performs over the years.