Why Is It Called a 401k ? The Boring Tax Code Story

Last month, my coworker Jake asked me during lunch: “Why is it called a 401k anyway? It’s such a weird name for a retirement plan.” I realized I’d been contributing to mine for years without ever questioning the bizarre numbering system.

Here’s the thing – the story behind the 401k name is way more interesting than you’d expect from something that sounds like a robot’s serial number.

Honestly, it’s one of those “happy accidents” that completely transformed how Americans save for retirement.

Why the 401k Name Actually Matters (More Than You Think)

Something I’ve noticed when talking to friends about retirement planning: people are intimidated by the technical-sounding “401k” name. It makes retirement savings feel complicated and government-y.

But here’s what shocked me when I dug into the history – this wasn’t even supposed to be a retirement plan originally!

Why is it called a 401k? The answer is beautifully simple: it’s named after Section 401(k) of the Internal Revenue Code, added in 1978 as a tiny tax provision that nobody expected to matter.

The Accidental Revolution That Started With Boring Tax Code

Picture this: It’s 1978, and Congress is working on tax reform. Some lawmakers want to close a loophole where executives were deferring compensation to avoid taxes.

So they create Section 401(k) – a brief, technical provision buried deep in tax code. Boom – the foundation for America’s retirement system was born, and nobody realized it.

The Real Hero Behind Your 401k

Meet Ted Benna, a benefits consultant from Pennsylvania. In 1980, Ted was helping a client with their employee benefits when he stumbled across this obscure tax section.

Ted had his lightbulb moment: “What if we use this 401(k) provision to let regular employees save for retirement with pre-tax dollars?”

My friend Sarah in Denver always says: “Thank God for Ted Benna – that man accidentally made me a millionaire!” And she’s not wrong. Ted’s interpretation of 401(k) created the modern retirement savings system.

Real Numbers That’ll Make You Appreciate the Name

Let’s put this in perspective with some mind-blowing stats:

1981: The first 401k plan launches with a handful of employees 1983: Only 17,303 Americans had 401k accounts
2024: Over 60 million Americans participate in 401k plans Total assets: More than $7 trillion sitting in 401k accounts

Not bad for something named after a boring tax code section, right?

The Costly Mistakes That Come From Name Confusion

Here’s what makes zero sense: people avoid 401k plans because the name sounds intimidating.

Mistake #1: Thinking 401k means “complicated” My neighbor Mike avoided his company 401k for two years because he thought the technical name meant it required advanced financial knowledge.

Mistake #2: Not realizing it’s just a tax-advantaged savings account The number makes it sound like government bureaucracy, but it’s actually the simplest retirement tool ever invented.

Mistake #3: Assuming there are 400 other retirement plan types I’ve watched people stress about “choosing the right number” when 401k is just the tax code section that makes it work.

The Psychology Behind Why Names Matter in Finance

Something amazing happens when you understand that “401k” is just a tax code reference – the whole concept becomes less intimidating.

Here’s my insider knowledge: Financial companies love using technical names because it makes them sound smart. But your 401k is just a bucket where you put money and don’t pay taxes on it until later.

In my experience, once people realize the name is basically meaningless, they get genuinely excited about actually using their plans.

Other Retirement Plans With Equally Weird Names

403(b) plans: For teachers and non-profits (yep, another tax code section) 457 plans: Government employees get this one IRA: Individual Retirement Account (finally, a name that makes sense!)

See the pattern? Most retirement plan names come from tax code sections. It’s like naming your car after the DMV form you filled out to register it.

Here’s what surprises most people: These numbers have absolutely nothing to do with how much you can contribute or what benefits you get. They’re just filing system references that stuck.

Fun Facts That Make Great Conversation Starters

Ted Benna originally called his creation a “salary reduction plan.” Thank goodness that name didn’t stick!

The Johnson Companies in New Jersey became the first employer to offer a 401k plan in 1981. Their employees had no idea they were making history.

Plot twist: Ted Benna’s own employer initially rejected his 401k idea. He had to quit and start his own consulting firm to implement it.

Something I love telling people: If Congress had numbered that tax section differently, we’d all be talking about our “267f retirement plans” or whatever random number came next.

Practical Tips for Embracing Your Weird-Named Retirement Plan

Stop letting the name intimidate you. It’s just a savings account with tax benefits.

Focus on the benefits, not the bureaucratic labeling. Free money from employer matching beats worrying about tax code numbers every time.

Use it as a conversation starter. “Did you know 401k comes from a tax code section?” is surprisingly good small talk.

Remember Ted Benna’s legacy. Every time you see your 401k balance grow, thank the guy who saw potential in boring tax code.

Pro tip: When explaining 401k plans to friends, start with “it’s a tax-free savings account” instead of the intimidating number.

Take Action on Your Strangely-Named Retirement Plan

Ready to stop worrying about the name and start building wealth? Use our 401k Calculator to see how much your weirdly-named retirement plan could be worth.

Don’t let a random tax code number keep you from financial freedom.

The Bottom Line on 401k Naming

Why is it called a 401k? Because some government employees in 1978 needed to organize tax code sections, and Section 401(k) happened to be where they stuck a provision about deferred compensation.

Ted Benna turned that bureaucratic accident into America’s retirement revolution.

Quick 401k Name FAQ

Q: Are there plans called 401a, 401b, etc.?
A: Yes! There are various subsections in Section 401 of the tax code, but 401(k) became the famous one because Ted Benna figured out how to use it for regular employee retirement savings.

Q: Why didn’t they give it a better name later?
A: By the time 401k plans became popular, the name had stuck. Plus, changing it would have confused millions of people and required updating countless legal documents.