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Chapter 1. What Is a 401(k)? > 401(k) Versus Pension—What's the Difference? - Pg. 7

What Is a 401(k)? 7 These hybrid-type plans look more like 401(k) plans than pension plans because they present your benefit in a single lump sum each quarter (thus, the name cash balance). So, if you decide to accept that no-salary, all stock-option job offer, you'll know exactly how much money you have in your account (for food, that is). The mechanics of cash-balance plans are straightforward. Each pay period, "dollar credits," (i.e., an amount of money generally based upon your age and/or service) are deposited into your account. While your account grows as your service and pay increases, it will also grow because of investment return (that is, "investment credits"). Investment credits are usually based upon 1-, 5-, or 30-year Treasury securities with a minimum rate guaranteed (6 percent). Some employers even let you invest your account in the stock markets. For What It's Worth 401(k)s, 403(b)s, 457s, pension, profit-sharing, money purchase, ESOP, and IRAs are nothing more than protective shells that protect your money from taxes. Keep it in the shell--don't pay taxes. Take it out of the shell, and you'll pay, pay, pay!