Account Types
An employer-sponsored retirement savings plan in which both the employee and employer may make pre-tax contributions.
A cash balance pension plan is a defined-benefit plan with the option of a lifetime annuity. The employer credits a participant's account with a percentage of their yearly compensation plus interest charges for the plan.
A taxable account for businesses to invest their excess cash reserves.
An account controlled by an adult on behalf of a minor until they reach 18 or 21 years of age. The adult (custodian) must approve all transactions within the account.
A profit-sharing plan is a retirement plan that gives employees a share in the profits of a company. The employee receives a percentage of a company's profits based on its quarterly or annual earnings.
An account in which a beneficiary is named to receive the assets of the benefactor at the time of their death without going through probate. More than one beneficiary may be named with different percentages of the assets being specified by the benefactor.
Fixed annuities are types of insurance contracts that guarantee the buyer a specified interest rate on their contributions. The earnings within fixed annuities are tax deferred until the owner begins withdrawing and receiving income from the annuity.
A taxable account at a brokerage, bank or company owned by one, individual person.
A tax-advantaged retirement savings plan for individual small business owners and their spouses. Because the employer and the employee are the same individual, retirement contribution limits are much higher than traditional plans. Additionally, contributions made as the employer are tax-deductible.
A bank or brokerage account shared among two or more people, frequently used by couples, relatives, or business partners. Within joint accounts, every owner is able to withdraw cash, write checks, and make online payments.
An employer-sponsored Individual Retirement Account (IRA) that is able to be transferred into a traditional IRA. Rollover IRAs allow accounts to maintain their tax-deferred status.
In a Roth Individual Retirement Account (IRA), contributions to the account are taxed up front. Upon withdrawal, the owner incurrs no taxes.
A Simplified Employee Pension (SEP) is a type of Individual Retirement Account that can be established by an employer or self-employed person. Within a SEP IRA, the employer is given tax deductions for contributions to their SEP IRAs as well as each eligible employee's plans.
A Savings Incentive Match Plan for Employees (SIMPLE) is a tax-deferred retirement savings account established by employers, including self-employed individuals. Employers with 100 employees or less who have received at least $5,000 in compensation from the employer the prior year are able to create SIMPLE accounts for their employees.
Within a Traditional Individual Retirement Account (IRA), workers are able to direct pre-tax income towards investments that grow tax-deferred. The account is not taxed until the individual makes withdrawals from the account.
A variable annuity is an insurance contract in which the value can vary based on performance of the underlying portfolio. Variable annuities often offer greater income but at a higher risk of the account's value falling.
Economic Terms
The business cycle is the pattern of economic expansion and contraction that occurs over time. It is characterized by four stages: expansion, peak, contraction, and trough.
The consumer price index is the most commonly quoted rate of inflation. CPI is calculated by taking the price of basket of goods and services and is compared to the price it was the year prior to come up with the percent change, or the rate of inflation.
The Federal Funds Rate is an interest rate set by the Federal Open Market Committee (FOMC) to indirectly manage interest rates, inflation, and unemployment. This target rate is the interest rate at which banks borrow and lend their excess reserves to one another overnight.
The Federal Reserve, or the Fed, is the central banking system of the United States. Its key responsibilities are setting monetary policy, providing financial services and promoting stability. Its dual mandate is stabilizing prices and maximizing employment.
Fiscal policy is the use of government spending and tax policies to influence economic conditions.
Gross Domestic Product is the market value of all finished goods and services produced within a nation over a specified period. Nominal GDP is the current USD value of those finished goods and services, while Real GDP adjusts for inflation.
Inflation is the increase in the price of goods and services over time. Inflation is not measured on the price of a single good, but on the overall price level of goods and services in the economy.
Interest rates are the percentage of the principal amount a lender charges a borrower.
Monetary policy is a set of tools that a nation's central bank has to promote sustainable economic growth by controlling the overall supply of money that is available within the economy
The money supply is the total amount of money circulating throughout the economy. M2 is the most commonly quoted money supply, comprising cash, checking account deposits, savings account deposits, certificates of deposit, other short-term saving vehicles, and retirement account balances under $100,000.
A recession is a period of economic downturn in which economic activity declines.
Stagflation occurs when an economy is experiencing high inflation, high unemployment, and a stagnated demand for goods and services.
Supply and demand is a foundational theory in economics that shows the effects of and is affected by the price of a resource.
The unemployment rate (U-3) is the rate of unemployment measuring the number of individuals who are jobless and actively seeking employment, divided by the total number of people in the labor force.
Finance Terms
A beneficiary is a person or entity who is designated to receive the benefits of property owned by somoene else. Beneficiaries often receive these benefits as a part of an inheritance.
A broker is an individual or firm that acts as the intermediary between an investor and a securities exchange. Brokers services are compensated through commissions, fees or through the exchange itself.
A CPFA is a financial professional that demonstrates expertise and experience working with retirement plans. CPFAs create and carry out retirement plans for individual clients.
Cost basis is the original value or purchase price of an asset for tax purposes. Cost basis is used to calculate capital gains/losses, determining whether an investment is profitable or not.
A custodian is a financial institution that holds customers' securities for safekeeping to prevent them from being stolen or lost. Frequently, custodian banks manage customers' accounts and transactions, account for the status of assets, and ensure compliance with tax regulations.
An estate is everything comprising the net worth of an individual including land, real estate, personal possessions, financial securities, cash, and other assets the individual owns or has a controlling interest in.
An ETF is a type of pooled investment security that often tracks a particular index, sector, commodity, or other asset that can be purchased or sold on a stock exchange just as a regular stock can be.
An executor of an estate is an individual appointed to administer the last will and testament of a deceased person. The main duty of an executor is to carry out the instructions to manage the affairs and wishes of the deceased.
A fiduciary is an individual or organization that makes financial decisions on behalf of another party and is legally obligated to act in the client's best interests.
Financial advisors are professionals that help clients make decisions about what to do with their money. Advisors construct personalized financial plans that aim to achieve the financial goals of clients including investment options, savings, budgets, insurance policies, and tax strategies.
Fundamental analysis is a method of determining a stock's real, intrinsic, or "fair market" value. Fundamental analysts typically study the overall state of the economy, the strength of the industry, and the financial performance of the company.
A health care proxy is a document designating another individual the power to make health care decisions on behalf of the patient. Also known as a durable medical power of attorney.
Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself. The more liquid an asset is, the easier and more efficient it is to turn it back into cash. Less liquid assets take more time and may have a higher cost.
Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself. The more liquid an asset is, the easier and more efficient it is to turn it back into cash. Less liquid assets take more time and may have a higher cost.
Mutual funds are pooled assets from shareholders to invest in securities such as stocks, bonds, money market instruments and other assets. Professional money managers allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.
A portfolio manager is a person responsible for investing a mutual, exchange traded, or closed-end fund's assets, implementing their investment strategy, and managing day-to-day portfolio trading.
POA is the legal authorization for a designated individual to act on behalf of the individual. The two main POA types are financial and health care.
Probate court is a segment of the judicial system that oversees the execution of wills, the handling of estates, conservatorships, and guardianships.
RoR is the net gain or loss of an investment over a period of time, expressed as a percentage of the investment's initial cost.
An RIA manages the assets of high-net-worth individuals and institutional investors. RIAs must register with the Securities and Exchange Commission and any states in which they operate. Revenue for RIAs in earned through a management fee -- a percentage of assets held for a client.
When an individual with a tax-deferred retirement account (traditional IRA, 401(k), etc.) reaches the age of 73, the government requires a certain amount to be taken from the account each year in order for the taxes to be paid on the account.
ROI is a performance measure used to evaluate the efficiency/profitability of an investment. The calculation measures the amount of return on an investment relative to its cost.
RIAs are legally bound to serve the financial interests of their clients. Broker-dealers have more flexibility and their investments are bound by the "suitability" standard. Brokers register with the Financial Industry Regulatory Authority (FINRA), while RIAs register through the Securities and Exchange Commission (SEC).
A securities exchange is a market in which buyers connect with sellers. Common examples of these exchanges are the New York Stock Exchange or the Nasdaq.
Technical analysis is a method of analyzing and predicting stock movements based on past market data including price and volume.
TVM is the concept that money today is more valuable than money tomorrow. TVM is the reason for which interest rates are charged when money is borrowed.
Insurance Terms
AD&D insurance covers the unintentional death or dismemberment of the insured, often added in conjunction with health or life insurance policies. Dismemberment includes the loss or loss of use of body parts or functions. It is a limited insurance policy and generally covers unlikely events.
Burial insurance is a form of whole life insurance with a small death benefit that beneficiaries can use for any purpose.
Group life insurance is offered by an employer or other entity to its workers/members. Group life offers a relatively low coverage amount and is offered as a piece of a larger employer or membership benefit package.
Mortgage life insurance is a term life policy designed specifically to repay mortgage debts and associated costs in the event of the death of the borrower.
Term life insurance guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can renew the policy, convert the policy to permanent coverage, or allow the policy to lapse.
UL is a permanent life insurance that gives policyholders flexibility in premium payments, death benefits, and the savings element of their policies.
Variable life insurance is a permanent policy with an investment component. The policy has a cash-value account with money that is invested, typically in mutual funds.
Whole life insurance provides permanent death benefit coverage for the life of the insured. Whole life insurance also contains a savings component in which cash value may accumulate. Interest accrues at a fixed rate on a tax-deferred basis.
Trust Terms
An APT is a trust vehicle that holds an individual's assets with the purpose of shielding them from creditors. APTs offer the strongest protection from creditors, lawsuits, or any judgements against your estate.
A blind trust is established by the owner giving another party full control of the trust. The trustee has full discretion over the assets and investments while being charged with managing them and any income generated in the trust.
A charitable remainder trust is an irrevocable, tax exempt, "split-interest" giving vehicle that enables people to pursue philanthropic goals while still generating income.
A CRUT is an irrevocable, tax-exempt trust that generates income and provides donations to a chosen charity. They are often used to reduce taxable income, avoid capital gains taxes, and take an immediate partial income tax deduction.
CSTs are designed to allow affluent couples to reduce or avoid estate taxes when passing assets to heirs. CSTs are created upon a married individual's death and funded through the estate
A GST is a legally binding trust agreement in which the assets are passed down to the grantor's grandchildren. By passing over the grantor's children, the assets avoid estate taxes that would apply had the grantor's children inherited the assets.
A grantor is an individual or other entity that creates a trust and legally transfers control of those assets to a trustee who manages it for one or more beneficiaries.
An ILIT is an irrevocable trust set up with a life insurance policy as the asset, allowing the grantor of the policy to exempt assets away from their taxable estate.
An irrevocable trust is one that cannot be modified, amended, or terminated without the permission of the grantor's beneficiary. With an irrevocable trust, the assets are moved from the grantor's control and name to that of the beneficiary.
A living trust is a legal arrangement established by the individual during their lifetime to protect their assets and create specific asset distribution plans for when the individual dies.
A QTIP trust enables the grantor to provide for a surviving spouse and maintain control of how the trust's assets are distributed once the surviving spouse dies. Income generated from the trust, and sometime the principal, is given to surviving spouse to ensure that the spouse is taken care of for the rest of their life.
The provisions within a revocable trust may be altered or canceled depending on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.
A special needs trust is a legal arrangement and fiduciary relationship that allows a disabled or chronically ill person to receive income without reducing their eligibility for SSI or Medicaid.
A testamentary trust is one that is established in accordance with the instructions contained in a last will and testament. These trusts provide instructions for the distribution of assets within a decendent's estate.
A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for various purposes, such as bankruptcy, certain types of retirement plans, or to manage assets for somone.

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