Vocabulary

• 401(k) – A retirement savings plan sponsored by an employer that allows employees to contribute a portion of their pre-tax salary to a retirement account.
• Contribution – The act of adding money to a retirement or investment account.
• Pre-tax – Money that is taken out of your paycheck before taxes are deducted.
• Employer match – A benefit where the employer matches the employee's 401(k) contribution up to a certain amount.
• Vesting – The process by which an employee earns the right to keep the employer's contributions to the 401(k) plan.
• Withdrawal – The act of removing money from a retirement or investment account.
• Rollover – The process of moving retirement assets from one plan to another without incurring a tax penalty.
• Diversification – The practice of spreading investments among different types of assets to reduce risk.
• Mutual Fund – An investment vehicle that pools money from many investors to purchase securities like stocks and bonds.
• Stock – A type of investment that represents ownership in a company.
• Bond – A type of investment that represents a loan to a company or government in exchange for regular interest payments.
• Asset Allocation – The strategy of dividing investments among different asset classes, such as stocks and bonds.
• Risk Tolerance – An individual's ability or willingness to endure declines in the values of their investments.
• Target-date Fund – A mutual fund that automatically adjusts the mix of stocks, bonds, and cash equivalents in its portfolio based on a selected retirement date.
• Compound Interest – The addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
• Inflation – The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Tax-deferred – Investment earnings such as interest, dividends or capital gains that accumulate tax-free until the investor withdraws and takes possession of them.
• Required Minimum Distribution (RMD) – The minimum amount you must withdraw from your account each year after you reach age 72.
• Early Withdrawal Penalty – A penalty for taking money out of a retirement account before a certain age, usually 59 1/2.
• Catch-up Contribution – Additional amounts that individuals age 50 or older can contribute to retirement accounts.
• Roth 401(k) – A type of 401(k) plan where contributions are made after taxes, but withdrawals in retirement are tax-free.
• Traditional 401(k) – A type of 401(k) where contributions are made pre-tax, but withdrawals in retirement are taxed.
• Fiduciary – A person who acts in the best interest of another person, or group of people, when managing assets.
• Index Fund – A type of mutual fund with a portfolio constructed to match or track the components of a market index.
• Financial Planner – A professional who helps individuals create a comprehensive plan for meeting their financial goals.
• Annuity – A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.
• Dividend – A payment made by a corporation to its shareholders, usually in the form of cash or additional shares.
• Securities – Financial instruments, like stocks or bonds, that have some monetary value and can be traded.
• Capital Gain – The increase in value of an investment or real estate that gives it a higher worth than the purchase price.
• Portfolio – A collection of financial investments like stocks, bonds, cash equivalents, mutual funds, and other assets.
• Exchange-traded Fund (ETF) – A type of security that involves a collection of securities—such as stocks—that often tracks an underlying index.
• Money Market Fund – A type of mutual fund that invests in highly liquid, short-term instruments like cash and cash equivalent securities.
• Profit Sharing – A plan that gives employees a share in the profits of the company.
• Defined Benefit Plan – A type of pension plan in which an employer/sponsor promises a specified pension payment on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age.
• Defined Contribution Plan – A type of retirement plan in which the employer, employee or both make contributions on a regular basis.
• Salary Deferral – An arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned.
• Loan Provision – A feature in some retirement plans that allows employees to borrow money from their accounts.
• Automatic Enrollment – A feature in some retirement plans that automatically enrolls employees in the plan unless they choose to opt out.
• Hardship Withdrawal – A provision in some retirement plans that allows employees in financial distress to withdraw funds.
• Net Unrealized Appreciation (NUA) – The increase in the value of the securities held in a tax-deferred account that has not yet been taxed.
• Lump Sum – A one-time payment for the total or partial value of an asset.
• Pension – A retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit.
• Social Security – A federal insurance program that provides benefits to retired people and those who are unemployed or disabled.
• Tax Credit – An amount of money that can be offset against a tax liability.
• Tax Deduction – A reduction in tax obligation from a taxpayer's gross income.
• Estate Planning – The act of preparing for the transfer of a person's wealth and assets after his or her death.
• Actuary – A business professional who deals with the financial impact of risk and uncertainty.
• Beneficiary – A person who receives the benefit from an insurance policy or retirement plan.
• Real Rate of Return – The annual percentage return realized on an investment, adjusted for changes in the price level due to inflation or deflation.
• Securities and Exchange Commission (SEC) – The U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.