401K
A deferred contribution plan set up by an employer that allows employees to deduct a portion of their salary from their paycheck to be set aside for retirement on a pre-tax basis. Currently there is a limit of $12,000 that can be contributed to a 401(k) but will continually rise to $15,000 by 2006. Employers may also contribute a full or partially matching amount. Contributions to this plan, as well as investment earnings and interest are not taxed until the participant withdraws the money from the plan, which is typically at retirement. If money is withdrawn before age 59 1/2, he or she will be subject to a 10% withdrawal penalty tax.

403(b) Plan
A tax-deferred retirement plan that is the equivalent of a 401(k) plan but for qualifying nonprofit organizations, public schools, and municipal agencies.

Administered Estate
This term refers to the estate of a decedent which is being formally administered through court proceedings that typically involve the appointment of a legal representative, such as an administrator or executor. In other words, the court is supervising the settlement of the estate.
 

457 Plan
A non-qualified, deferred compensation plan established by state and local governments and tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.
 

529 Plan
A plan that allows for the prepayment of qualified higher education expenses at eligible educational institutions. Also known as a "qualified tuition program."
 

Annuity
A financial contract between an insurance company and the policy holder (purchaser) that provides for a series of payments at regular intervals to be received for a number of years or over a lifetime. Earnings of annuities grow tax-free until payouts begin, which is usually around 65. Annuities are hybrids of insurance and investments.
 

Asset Allocation
The practice of distributing a certain percentage of a portfolio between different types of investment assets, such as stocks, bonds, mutual funds, cash, real estate, options, etc. By diversifying an individual’s asset base, one hopes to create a favorable risk/reward ratio for a portfolio.
 

Beneficiary
(Insurance) The person or organization named in a policy that will receive the life insurance or other benefit payments in the event of an insurer’s death.

(Will) A person designated to receive property or income in a will.

(Trust) The individual who will benefit from the creation of a trust.

Blackout Period
A term that refers to a temporary period in which access is limited or denied. A period of around 60 days during which employees of a company with a retirement or investment plan cannot modify their plans. Notice must be given to employees in advance of a pending blackout.

Bequeath
To give personal property in a will.

Diversification
The method of reducing risk by distributing investment assets among a variety of investment securities which have different risk/ reward ratios.

Dollar Cost Averaging
An investment approach used to buy a fixed dollar amount in the same stock or mutual fund on a regular schedule over a long time span. It is designed to reduce the average cost per share because more shares will be bought when the price is down and fewer shares will be bought when the price is up.

Deferred Annuity
A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.  A deferred annuity can either be variable or fixed.

Estate Tax
A federal or state tax imposed on the fair market value of all assets, less liabilities, held by a person at the time of death. See inheritance tax.

Fiduciary Capacity
Relates to conducting business or handling property for the benefit of another person.

Formal Will
A will which has been correctly drafted, signed, and witnessed.

Individual Retirement Account (IRA)
A self-directed, tax-deferred retirement investment account established by employed workers who earn a salary, wage, or self-employment income. An IRA account can be with a bank, mutual fund, insurance company, or another trustee. Deposits for traditional IRAs are tax deductible and the investment earnings in the account are not taxable until withdrawn. Different rules apply depending on the type of IRA account.

Inheritance Tax
A state tax based on the value of property passing to each heir. It differs from the estate tax in that kinship generally determines the tax rate and the exempt amount, while the estate tax is a net value tax. See estate tax.

Investment Club
A group of individual investors who pool their investment knowledge and money to create a jointly owned and managed portfolio for the purpose of earning positive long-term gains with moderate risk.

Keogh Account
A tax-deferred trust savings account that allows self-employed individuals or those who own their own incorporated businesses to save for their retirement. Savers place a portion of their income each year in their Keogh account until they reach at least age 59 1/2. Federal income tax on the deposited funds and the interest they earn is deferred until withdrawals are begun, presumably when the saver has retired, and is, therefore, in a lower tax bracket. Employers who establish a Keogh plan for themselves must also make the benefit available to qualified employees.
 

Keogh Plan
A tax-deferred retirement plan for self-employed individuals that allow for making tax-deductible payments for themselves and their employees. Most plans have a maximum contribution limit of $30,000 per individual.

Lump-sum Distribution
The withdrawal of an individual’s pension benefits or retirement savings all at once in one payment.

Matching Contribution
A type of contribution an employer chooses to make to his or her employee’s employer-sponsored retirement plan. The contribution is based on elective deferral contributions made by the employee.

Matching Strategy
A strategy of creating investment portfolios that meet the individual needs of investors through tiered investment durations.

Money-Purchase Pension Plan
A defined-contribution plan to which employer contributions are fixed.

Nest Egg
A special sum of money saved or invested for one specific future purpose.
 

Non-administered Estate
An estate of a decedent the settlement of which is not supervised by the court and for which a legal representative has not been appointed by the court.

Non-elective Contribution
A type of contribution an employer chooses to make to each of his or her eligible employee’s employer-sponsored retirement plan. The contribution is not based on salary reduction contributions made by the employee.

Ordering Rules
The order in which Roth IRA assets are distributed. Assets are distributed from a Roth IRA in the following order:

1.      IRA participant contributions

2.      Taxable conversions

3.      Non-taxable conversions

4.      Earnings

Pension Fund
A fund set up to collect regular premiums from employees and their employers, invest those funds safely and profitably, and pay out a monthly income to employees who reach a specified age and retire.
 

Pension Plan
A fund set up by employers, in which the employer and/or employees make regular contributions in order to provide the employee income after retirement. Pension plans in corporations have been on the decline in recent years.
 

Portfolio
A collection of stocks and bonds, and other investments that may include gold, real estate and mutual funds, which are all owned by an individual or organization.

Reinvestment
The process of investing new capital in existing, mature, developed neighborhoods, most likely in inner city areas. The reinvestment is usually in the form of housing rehabilitation, public works improvements, and new or reconditioned commercial development.

Remainderman
The person designated to receive assets at the end of a trust term.

Risk tolerance
The level of risk that an investor is willing to take on an investment.

Roth IRA
A Roth IRA is an individual retirement account (IRA) in the United States that provides tax-free growth. A Roth account may be opened through a variety of investment vehicles such as stock or mutual funds. As with all IRAs, there are specific eligibility and filing status requirements required by the U.S. Internal Revenue Service. A Roth IRA’s main advantage is its tax structure. Contributions are made post-tax, but the growth is tax free and does not require individuals to pay taxes again on this money.

Qualified Acquisition Cost
In the context of IRA withdrawals, penalty free withdrawals from the IRA used to purchase a first home.

Savings Account
An account maintained by a customer with a depository institution for the purpose of accumulating funds over a period of time. Funds deposited in a savings account may be withdrawn only by the account owner or a duly authorized agent, or on the owner’s nontransferable order. The account may be owned by one or more persons. Some accounts require funds to be kept on deposit for a minimum length of time, while others permit unlimited access to funds. Earnings may be in the form of dividends, as in the case of a share type savings account, or interest as in the case of a deposit type account.

Spousal IRA
An Individual Retirement Account (IRA) established by a working spouse for his or her non-working spouse. Spousal IRAs were created by the Tax Reform Act of 1976.

Trust
A legal contract between the grantor (creator) and the trustee, which gives ownership to a trustee to manage wealth and direct income for the benefit of another. Trusts may be created for a wide range of reasons, which may include providing money for education, protecting assets from creditors, reducing estate taxes or providing income to future generations.

Trustee
An individual or agent (such as an attorney or bank trust department) to whom property is entrusted to manage and promises to wisely administer it for the use and benefit of the beneficiary or beneficiaries.

Trustor
The individual (in some instances, an institution or organization) who creates a trust. The Trustor may also be called the Maker, Donor, Grantor, or Settler.

Value Investing
An investing strategy that focuses on investing in companies thought to be undervalued. To determine undervalued stocks using this strategy, investors often look for stocks with low price-to-earnings ratios and low price-to-book values. Value investing is focused more on fundamentals of a stock and less on technical analysis.
 

Will
A legal written document that directs the transferal of an individual’s assets at death.