Share this Page URL

Chapter 1. What Is a 401(k)? > What Is a 401(k) and Where Did It Come From? - Pg. 3

What Is a 401(k)? 3 Terms to Know A 401(k) is a type of defined contributions plan. A pension plan is a defined benefit plan. You can contribute to the first. Except in very rare cases, you can't contribute to the second. The incentive that Congress gave us back in 1978 was a chance for us to reduce our federal and state income taxes. Assuming that you prefer paying less in taxes, this was a good thing. While Congress concocts the laws that create the taxes, our friends at the Internal Revenue Service (the IRS) have the fun job of implementing our tax laws. There are rules for everything in life, and the IRS is no different; its rules are called the Internal Revenue Code or IRC (a.k.a. "the Code"). For What It's Worth