An employer-sponsored investment plan for retirement. Employees make contributions to the plan and choose from a variety of investments. Employers may match a portion of employees' contributions.
Administrative expenses generally are the costs associated with general services (such as legal, accounting and recordkeeping expenses) provided to or on behalf of retirement plans. They do not include the costs incurred in directly managing the actual investments. Administrative expenses may be charged against plan participants’ accounts by the retirement plan itself or its agents and suppliers. They are generally assessed proportionately for all participants in the plan.
Aggressive Growth Funds
Mutual funds that invest in companies with the potential for rapid growth, such as companies in developing industries, small but fast-moving companies, or companies that have fallen on hard times but appear due for a turnaround. The increase in potential return is accompanied by increased risk.
Alpha measures the portion of an investment's return that is unrelated to the performance of the overall market; it is the difference between an investment’s actual return over a period of time and its market return as measured by beta. Alpha is most commonly used with stock funds and is one way to measure the value that a portfolio manager adds to (or detracts from) a fund's return.
Annual Gift Tax Exclusion
The total amount of cash, securities, or other assets that a person is allowed to give another person without exceeding the federal gift tax limit. The current annual exclusion is $15,000 per year, per individual, or $30,000 for married couples. This amount will be adjusted periodically to reflect changes in inflation.
Annual Percentage Rate (apr)
An interest rate that expresses, on an annualized basis, the charges imposed on consumer credit. Federal regulations require companies that advertise loans or credit cards to disclose the APR in bold lettering. This enables consumers to compare rates and to see the true rate of interest repayment they would incur over the full year.
A contract between an individual and an insurance company in which the individual pays money into an account in exchange for a guaranteed payment at or during retirement. Annuities offer tax-deferred growth potential. There are two types: fixed and variable.
The process of dividing investments in your portfolio among different kinds of assets, such as stocks, bonds, real estate, and cash, to try to meet a specific objective.
Available Applicable Exclusion Amount
The exclusion amount is $11.7 million in 2021. Future years indexed to inflation. Not all of your property is eligible for the applicable exclusion amount. For the purposes of this calculator, any qualified plan assets or jointly owned property do not qualify for the applicable exclusion amount. There are certain complex planning measures you may be able to execute in order to maximize the use of the applicable exclusion amount. Check with your tax or legal advisor for more information.
Available Applicable Exclusion Amount
Based on your inputs, this is the amount of the applicable exclusion that the second spouse's estate will be eligible to use.
Average Annual Total Return
Average annual total return means the average annual compounded rate of return that would equate an initial investment in a designated investment alternative to the ending redeemable value of that investment. It may also be called annualized total return. Return calculations typically use a before-tax method of computation defined by the Securities and Exchange Commission. Calculations may also take investment fee or commission waivers into account.
A sales fee charged when you sell or redeem shares of a mutual fund.
A balanced fund is a fund that seeks both income (interest, dividends) and capital appreciation (increase in the value of an asset) by investing in a generally fixed combination of stocks and bonds. These funds typically hold a minimum of 25% of their assets in fixed-income securities (like bonds), but each fund’s actual practices are spelled out in its prospectus or other governing document.
A market index used by individual investors, portfolio managers, and market researchers to determine how a particular market or market sector performs.
One who receives the proceeds of a trust, retirement plan, or life insurance policy.
The legal term for any asset (excluding real estate) that is transferred to an heir through a will.
A way to measure the "risk" or price volatility of a particular stock or mutual fund as it compares with the market as a whole. A beta of 1.0 indicates that a security's risk measurement is on par with the market. A beta of 1.20 indicates that a security is 20% more volatile than the market, while a beta of 0.80 indicates that a security is 20% less volatile than the market.
An investment vehicle representing a loan to a corporation, government entity, or municipality. Bonds typically pay a fixed interest amount on a predetermined schedule and return their investment principal at maturity. Bonds issued by the U.S. government are backed by the full faith and credit of the United States. Other bonds are backed by the financial strength of their issuers and carry varying degrees of credit risk.
Mutual funds that invest in bonds issued by municipalities, corporations, and the U.S. government and its agencies. Bond mutual funds do not mature and are not guaranteed, although some of the individual bonds they invest in may be.
A brokerage window refers to the option for a retirement plan participant to use a brokerage account to manage some or all of one’s assets in an employer-sponsored retirement plan.
The risk to a bondholder that a bond issuer may redeem, or "call," a bond prior to its maturity date, often due to falling interest rates.
The difference between what you paid for shares purchased and what you realize when you sell them.
The profit earned from the sale of a capital asset, such as real estate or stocks. A capital gain is not "realized" until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on the owner's income tax return for the year in which the asset was sold.
Capital Gains Distribution
Profits distributed to shareholders that had resulted from the sale of securities held in a mutual fund's portfolio.
The loss incurred when a capital asset, such as real estate or stock, decreases in value from its purchase price. A capital loss is not "realized" until the asset is sold.
Charitable Remainder Trust
A trust that allows you to leave assets to a charity and receive income and tax benefits at the same time. You can receive income from the trust for a specified period of time, after which all remaining assets are transferred to the charity.
A trust that lets you donate to charity and in return provides you and your heirs a tax break.
A collective fund is an investment vehicle that combines the investment holdings of smaller organizations in order to create a larger, potentially more diversified portfolio. Collective funds are typically operated by regulated institutions that could assume fiduciary or trust responsibility, such as banks and trust companies.
The term used for the short-term IOUs (generally three to nine months in duration) of large, creditworthy corporations.
This is a service charge assessed by a broker or investment advisor and collected as part of the purchase or sale of an investment product or security. Commissions are a principal source of revenue for many firms and may cover the costs of providing investment advice as well as servicing the transaction. Commissions vary widely from brokerage to brokerage.
Earnings on an investment's earnings. Over time, compounding can produce significant growth in the value of an investment.
Consumer Price Index
The most commonly used measure of inflation, the CPI tracks the average change in the prices of a fixed "market basket" of goods and services, including energy, food, health care, clothing, and entertainment. It is revised monthly by the U.S. Bureau of Labor Statistics.
A named individual or entity who will receive a benefit from an insurance policy, pension plan, trust, or will if he, she, or it is predeceased by the named primary beneficiary. Also referred to as the secondary beneficiary.
The degree to which the movements of two or more variables (such as investment returns) are related.
Coverdell Education Savings Account
Formerly known as the Education IRA. An account created to pay the higher education (or elementary and secondary school) expenses of its beneficiary. Contributions, which are currently limited to $2,000 a year, are not tax deductible but any accumulated earnings are tax free if used to pay eligible bills. Contributions generally are not allowed after the child reaches age 18.
Covered Individual Account Plan
This is the formal term for employer-sponsored retirement programs that are subject to federal regulation and that allow retirement plan participants to direct the investment of their account balances under the retirement program. The term does not include accounts that are managed as variations of individual retirement accounts, such as SIMPLE IRAs and SEP-IRAs.
The measure of a bond issuer's ability to make regular interest payments and pay the face value of the bond at maturity.
A detailed summary of your financial affairs prepared by a third party, and usually reviewed by lenders when you are applying for a loan. The report typically lists your outstanding loans and credit cards, your employment history, your former addresses, and any lawsuits in which you may have been involved. It will also indicate whether you pay your bills on time.
1. A measure of a bond issuer's ability to repay its principal and interest as promised; 2. An individual consumer's creditworthiness, as reported on a credit rating.
Deferred Sales Charge
A deferred sales charge (also called a deferred sales load) is a fee that may be imposed when certain classes of mutual fund shares are redeemed and should be disclosed at the time of the share purchase. The amount of the load charged generally declines the longer shares are held. Sales loads and other significant fund ownership fees (such as 12b-1 fees) are described in detail in the fund’s prospectus. Because fees change frequently and are sometimes waived, it is wise to examine the fund’s prospectus carefully for specific information before investing.
Defined Benefit Plan
An employer-sponsored retirement program that is funded by the employer and in which the participant receives a fixed amount of money each year in retirement. The precise amount of this pension is based on salary and length of time on the job. This contrasts with a defined contribution plan, in which the level of income available in retirement will depend on employee contributions and investment performance.
Defined Contribution Plan
An employer-sponsored retirement program in which the participant sets aside a portion of his or her salary each year in an investment account on a tax-deferred basis. Contributions to DC plans may be deductible from current income, and employers may augment savings with matching contributions. The actual value of assets available to fund retirement will depend on investment performance. Profit-sharing, employee stock ownership, 401(k), 403(b), and 457 programs are all defined contribution plans.
Department Of Labor (u.S.)
The United States Department of Labor (DOL) is a cabinet-level department of the federal government. It provides regulatory oversight for many aspects of employer-sponsored retirement plans. The Employee Benefits Security Administration is the DOL’s key agency for retirement plan regulation and supervision. Many states have their own departments that may impose additional rules on workplace benefit programs within their jurisdictions.
A security with a value based on, or "derived," from an underlying financial asset. Types of derivatives include futures, options, and collateralized mortgage obligations.
Designated Investment Alternative
Designated investment alternative is the term used for any of the potential investment choices in a retirement plan that had been selected by the plan sponsor. An investment selected through a self-directed brokerage arrangement would not be considered a designated investment alternative.
The process of helping reduce risk by investing in several different types of individual funds or securities.
A percentage of a company's profits paid to its shareholders.
One who gives property or assets through a trust or as an outright gift.
Dow Jones Industrial Average
An index that follows the returns of 30 well-established American companies, the Dow is a widely quoted measure of U.S. stock market performance. It has a history of more than 100 years.
A measurement of the price sensitivity of a fixed-income investment. A higher duration indicates a higher level of price fluctuation for a given change in yield. Longer-term bonds tend to have greater durations than shorter-term bonds, but two bonds with the same time to redemption and the same current yield may still have different durations.
Renamed the Coverdell Education Savings Account. An account created to pay the higher education (or elementary and secondary school) expenses of its beneficiary. Contributions, which are currently limited to $2,000 a year, are not tax deductible, but any accumulated earnings are tax free if used to pay eligible bills. Contributions generally are not allowed after the child reaches age 18.
Lesser-developed countries that may be experiencing rapid economic growth and liberalization of government restrictions on free commerce. Examples of emerging market countries include Brazil, Malaysia, and Thailand.
This is the term used to describe shares of stock issued by the participants’ employer.
Shareholders' ownership interests in companies. The term is often used interchangeably with "stocks."
Equity Wash (stable Value Fund)
For a stable value fund, the equity wash is a provision that requires any transfers made from the stable value fund to be directed to an equity fund option of the retirement plan for a stated period of time (usually 90 days). After that specified time, the funds may be reinvested in any competing fixed-income fund (such as a money market fund). This provision is intended to reduce interest rate arbitrage by plan participants, thus permitting stable value contract issuers to underwrite the plan without excessive risk exposure. (Please note that the term equity wash has a different meaning in the context of share trading and federal tax accounting.)
Preparing for the orderly administration, management, and distribution of a person's assets and liabilities during one's lifetime and upon death. In addition to a will, an estate plan may include trusts, insurance, and other elements intended to carry out the wishes of the estate owner and improve the estate's after-tax value.
This is the approximate amount your estate could pay in estate taxes. Keep in mind that your estate may also incur state and local transfer taxes and possible generation-skipping transfer taxes. Estate planning is a very complex topic with many governing laws, so you should consult a qualified tax or legal professional for advice.
The person named in a will to handle the settlement of an estate. (A woman may archaically be referred to as an executrix.)
Nickname for the Federal National Mortgage Association, a government-sponsored enterprise that buys mortgages from financial institutions and packages them as investment securities. Its activities are supposed to help improve liquidity in the mortgage market.
First-To-Die Life Insurance
An insurance plan that insures two lives and pays proceeds at the time of the first death.
An annuity that earns a guaranteed rate of interest for a certain period of time. The amount of the benefit to be paid out of the annuity when the contract is annuitized also is fixed.
A sales fee paid up-front when you purchase shares of a mutual fund.
Basic research to determine if an equity is overvalued or undervalued at its current price. The analysis often includes evaluating the company's financial statements and the capability of its management, as well as researching how economic factors may influence the industry.
Graduated federal tax imposed upon a person who gives assets of more than $15,000 in any single year to a recipient. This amount may be indexed for inflation in future years. Each individual also has an $11.7 million combined lifetime gift tax and estate tax exclusion in 2021. This limit may be adjusted annually for inflation.
Nickname for the Government National Mortgage Association, which guarantees investors the timely payment of principal and interest on securities backed by federally insured or guaranteed loans.
Mutual funds that invest in securities issued in the United States and foreign nations. Global funds may be susceptible to risks such as currency fluctuation and political or economic changes.
The owner of an estate who sets up a trust.
Mutual funds that strive for capital appreciation by investing in companies that are positioned for strong earnings growth.
A person given legal responsibility for the rights and affairs of a minor or mentally incapacitated person.
Health Care Proxy
A legal document that grants authority to make medical decisions for another person if that person is incapacitated.
High-yield bonds are issued by organizations that do not qualify for "investment-grade" ratings by one of the leading credit rating agencies. For this reason, issuers of high-yield bonds must pay a higher interest rate to attract and to compensate them for the increased risk of default -- not paying interest or principal in a timely manner -- associated with investing in organizations of lower credit quality.
Home Equity Loan
Indicate the current amounts owed on any equity lines of credit you may have, as well as the current principal balance of any mortgages or lines of credit you may have on other properties owned.
Incentive Stock Option
A type of stock option that allows an employee to buy shares of an employer's stock at a pre-established price. If the shares are held for a longer period of time, the sales price will reflect a favorable tax treatment.
Mutual funds that attempt to mirror the composition and performance of a specific market index.
Individual expenses are those costs that may be charged against the retirement plan account of a single plan participant or beneficiary. Individual expenses could include fees for processing plan loans or qualified domestic relations orders, fees for investment advice, fees for brokerage windows, commissions, front- or back-end loads or sales charges, redemption fees, transfer fees and similar expenses, and optional rider charges in annuity contracts.
Individual Retirement Account (IRA)
A retirement account to which you may be able to contribute up to a specific annual amount (the maximum amount is determined by Congress). Individuals aged 50 and older may also make additional annual catch-up contributions (up to a specified amount as set by Congress). IRAs give your money the potential to grow tax-deferred and, depending on your personal circumstances, contributions may be tax deductible (withdrawals prior to age 59-1/2 may be assessed a 10% additional federal tax). Withdrawals from traditional IRAs are taxed at then-current rates. There are two types of IRAs: traditional and Roth.
The risk that the purchasing power of savings will decrease due to rising prices.
Promissory note in which the principal adjusts with inflation, thus locking in a specific after-inflation return if held to maturity. Treasury Inflation-Protected Securities (TIPS) and Series I savings bonds are backed by the United States government and are indexed semiannually to the Consumer Price Index (CPI).
A regular payment of financial debt to a lender. Payment comprises both principal and interest. Additional payment will result in an increasing amount of principal paid and a decreasing amount of interest paid, potentially paying off the debt more quickly.
Interest Rate Risk
Most often associated with fixed-income investments, this is the risk that a security's price will fall when interest rates rise in the market.
Without a will. If you die intestate, the courts will decide how your estate is divided (according to laws that vary from state to state) and appoint guardians for any minor children.
The potential for an investment's price or return to deviate from its expected price or return.
Irrevocable Life Insurance Trust
An irrevocable life insurance trust (ILIT) is a unique way to remove life insurance policy proceeds from your estate and pass them directly to your heirs. When properly executed, qualified assets in an ILIT pass along free of estate taxes. Consult a qualified legal professional for more information.
A legal arrangement that gives a trustee control over select assets and cannot be modified once it is established.
Also called a high-yield bond, a junk bond is one with a low credit rating -- BB or lower, according to Standard & Poor's. Junk bonds are often issued by companies that do not have strong track records of sales and earnings, and therefore have questionable credit strength. Junk bonds are generally more risky than investment-grade bonds; to compensate, they offer higher yield.
Shares issued by large companies, typically those with market capitalizations of $10 billion or more.
Leverage refers to the use of borrowed funds in an attempt to enhance portfolio performance. A fund that earned a profit by investing borrowed money in addition to its shareholder capital can report any profits it might earn from investing the borrowed funds as part of any total returns to its shareholders. However, if the gains on investments bought with borrowed funds are less than the costs of borrowing, the net losses must be used to reduce any shareholder returns.
The ability to quickly turn your investments into cash at prevailing market prices.
A trust that allows you to remain both the trustee and the beneficiary of the trust while you're alive. You maintain control of the assets and receive all income and benefits. Upon your death, a designated executor distributes the remaining assets according to the terms set in the trust.
A legal document that outlines what life-prolonging measures an individual wants taken if he or she is terminally ill or incapacitated. Rules governing living wills vary from state to state.
Long-Term Capital Gains
Net gains on assets sold more than 12 months after purchase; taxed at a maximum rate of 15% for most taxpayers and 20% for higher-income taxpayers. In addition, a 3.8% Medicare surtax is added for most taxpayers earning more than $250,000 if married or $200,000 if single.
Long-Term Care Insurance
An insurance policy that provides long-term benefits, including a broad range of health services for the chronically ill or disabled. Services may be provided on an inpatient, outpatient, or at-home basis.
A measure of a company's value calculated by multiplying the number of shares outstanding by the current price per share.
The portion of a security's overall variability that can be attributed to the variability of the market as a whole.
An investment strategy in which the investor tries to increase returns by trading in anticipation of major changes in market prices.
The date by which an issuer promises to repay a bond's face value.
A federal program that assists people aged 65 and older by helping to pay for health care expenses. The traditional program has three parts -- Hospital Insurance (Part A), Supplementary Medical Insurance (Part B), and Prescription coverage (Part D). Medicare Advantage (Part C) offers a range of alternatives to traditional Medicare.
An individual insurance policy for retirees that can help pay medical expenses not covered by the Medicare system.
Money Market Funds
Mutual funds that invest in short-term money market instruments, such as U.S. Treasury bills, commercial paper, certificates of deposit, and repurchase agreements. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
A loan used to finance the purchase of a home or other property. The borrower gives the lender a lien on property as security for the repayment of the loan. The borrower has full use of the property, and the lien is removed when the obligation is paid in full. Mortgage repayment periods generally run between 10 and 30 years.
Bonds issued by state or local government to raise money to pay for special projects, such as building schools, highways, and sewers. The interest that investors receive is often exempt from federal income taxes and, in some cases, state and local taxes too. Interest may be subject to the alternative minimum tax (AMT).
A collection of securities -- stocks, for example -- owned by a group of shareholders and managed by an investment company. Mutual funds pursue a variety of goals, depending on their investment charter. Some funds work to generate income on a regular basis, while others seek to provide capital appreciation.
Nasdaq Composite Index
An index of more than 2,500 issues. Created in 1971, the NASDAQ Composite represents all securities traded on the NASDAQ national market system.
Net Return (or Net Total Return)
While dividends paid by U.S. companies to U.S. residents are not generally subject to tax withholding, such withholding is common elsewhere, especially for dividends paid across national borders. Indexes that take account of the impact of routine dividend tax withholding when they calculate total returns may be called Net Return or Net Total Return indexes; they typically carry the designation N or NR in their names. The presumed tax rate is typically the maximum effective rate applied to non-resident institutional investors.
A mutual fund that does not charge a sales fee. Such funds may charge a 12b-1 fee to cover marketing expenses. See the applicable prospectus for more information.
A mutual fund management style in which the fund manager simply attempts to replicate the return of a market index, usually by holding the securities that comprise the index.
The plan administrator is the individual, committee, or company that is responsible for the proper administration of a retirement plan in accordance with the terms of the plan documents and agreements that govern the retirement plan.
Portfolio Turnover Rate
The portfolio turnover rate is a statistic designed to facilitate comparisons between mutual funds with different investment practices. It measures the trading activity of the underlying assets of a fund (it is NOT a measure of investors buying and selling shares of the fund). The turnover rate is computed by taking total purchases or total sales (whichever is smaller) during a period and dividing that amount by the average net assets for the period. A turnover rate of 100% or more does not necessarily suggest that all securities in the fund portfolio have been traded, but it does mean that the total value of the underlying assets traded by the fund exceeded the value of the portfolio. A low turnover rate (30% or less) suggests a fund manager may have a buy-and-hold strategy. A high turnover rate (more than 100%) could indicate an investment strategy involving considerable buying and selling of underlying assets.
A payment that a policy owner makes when purchasing an insurance policy or an annuity. Premium also can refer to an amount by which the sale price of a bond or stock exceeds the par, or face, value.
Prepaid Tuition Plan
A state-sponsored program that permits parents to pay tuition years before their child enrolls in college. Parents make payments based on current tuition at qualified colleges, thus avoiding increases in tuition over time. The payments are invested in a portfolio, and tuition is paid directly to the college when the child enrolls.
A beneficiary that is designated first in line to inherit a financial asset following an individual's death. Individuals typically name primary beneficiaries for life insurance, annuities, employer-sponsored retirement plans, individual retirement accounts, and other assets. Secondary, or contingent, beneficiaries inherit assets if the primary beneficiary dies or declines the inheritance.
This term refers to the practice of charging a proportion of a fee for a fraction of a unit that the fee applies to. A fee charged for a period of time can be prorated for the actual number of days that the fee applied to in the fee period. A fee charged for a unit (such as a block of shares) can be prorated for the actual number of shares involved. In practice, formulas are sometimes used to approximate or round off the quantities applied to prorated fees. These actual formulas are typically spelled out in the plan documents or prospectus. In the context of an employer-sponsored retirement plan, this term usually refers to the practice of charging fees proportionately across retirement plan participant accounts. In practice, a fee is assessed against a plan participant’s account in proportion to the size of his or her account relative to the size of all other participants’ accounts in the retirement plan.
A court-supervised process that determines whether a person's will is authentic. Probate typically encompasses a probate judge's review of a will and an executor's efforts to distribute property as specified by the decedent.
The official document that describes a mutual fund to prospective investors. A prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.
Put Option (stable Value Fund)
A put option in a stable value fund is a restriction imposed by the fund manager that limits the ability of a retirement plan sponsor to terminate the plan’s relationship with the fund. It is important to remember that the plan participant transactions are not affected by the put option. (Please note that the term put option has a different meaning in the context of derivatives trading.)
A trust that enables a family to delay paying estate taxes on assets that are bequeathed to a spouse. A QTIP trust permits a widow or widower to receive income and some principal from the trust, but not to will its assets to another spouse in the event of a remarriage. The assets are considered part of the widow's or widower's estate and may be taxed accordingly upon the person's death.
A redemption fee may be charged when an investor sells his or her shares after a relatively short period of time (typically one month to one year, but sometimes longer). Also known as an exit fee, it is typically assessed to discourage short-term, in-and-out trading of mutual fund shares. Redemption fees may be charged in addition to any back-end loads or contingent deferred sales charges and may sometimes apply to so-called no-load funds.
A contract that requires a seller of securities to buy the investment back in the future at a designated time and price. Repurchase agreements also are known as repos or buybacks.
Required Minimum Distribution (RMD)
The minimum amount that an IRA account holder is required to withdraw annually beginning by April 1 of the year following the year in which the taxpayer turns 72. RMDs also apply to employer-sponsored retirement plans, but may be postponed until retirement if an individual works beyond age 72 and is still employed by the company that is sponsoring the plan.
Bonds issued by government entities to finance specified revenue-generating projects. Investors are generally repaid from the project's revenues and may not have any further recourse if revenues do not cover debt service costs.
A credit agreement between a bank and a borrower in which the amount of available credit at any given moment depends on the overall credit ceiling on the account and on how much had been borrowed and repaid in the past. Bank credit cards are a common form of revolving credit.
Roth 401(k) Plan
An employer-sponsored investment plan for retirement. Employees make after-tax contributions to the plan, any earnings grow tax-deferred, and qualified withdrawals are tax free. Withdrawals prior to age 59½ may be subject to a 10% additional federal tax. Employers may match a portion of employees' contributions.
A retirement account to which you may be able to contribute up to a specific maximum amount each year (the maximum amount is determined by Congress). Individuals aged 50 and older may also make additional annual catch-up contributions (up to a specified amount as determined by Congress). Contributions are not tax deductible, but any growth is tax free and qualified withdrawals may be tax free. Certain holding periods and income restrictions apply.
A sales load is the fee charged as a percentage of the purchase price of mutual fund shares. The charge may be deducted immediately from the initial purchase (a front-end load) or collected when shares are redeemed (a deferred or back-end load). Sales loads and other significant fund ownership costs (such as 12b-1 fees) are described in the fund’s prospectus. Because fees change frequently and are sometimes waived, it is wise to examine the fund’s prospectus carefully for specific information before investing.
Bonds issued by the U.S. Treasury, typically in amounts ranging from $50 to $10,000. Savings bonds are noncallable -- which means the government cannot retire them before the maturity date -- and are also nontransferable, which means that bondholders cannot transfer them to someone else. Because savings bonds are backed by the full faith and credit of the federal government, many investors consider them to have relatively low investment risk.
Section 529 Plans
State-sponsored, tax advantaged plans that encourage individuals to invest in a pool of stocks and bonds for college savings. Contribution limits for Section 529 Plans vary from state to state. Generally, the asset allocation formula may be determined by a child's age (generally more aggressive for younger children and more conservative as children approach college age) or may be selected by the investor based on his or her risk tolerance. Distributions made to pay qualified education expenses are tax free.
Funds that invest in specific industries and economic niches to seek above-average returns. Their narrow focus may make them more volatile than broadly diversified funds and more vulnerable to single economic, political, or regulatory developments.
Securities And Exchange Commission (sec)
The principal federal agency created by Congress to regulate the U.S. securities markets, promote investment disclosure, and protect investors from fraud. Composed of five commissioners appointed by the president of the United States, the SEC enforces the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940, among other acts.
Securities lending is a transaction where a fund temporarily loans securities (stocks or bonds) to another party. The fund receives cash as collateral in exchange for the loaned securities. The cash collateral is reinvested to generate extra income or return for the fund. Securities lending may create additional volatility and risk of loss for the fund.
Self-Directed Brokerage Account
A self-directed brokerage account is the type of account made available to a retirement plan participant through an employer-sponsored retirement plan. This type of account option can allow participants to fully direct their investments in a broader range of assets than what might otherwise be available under a retirement plan.
Series Ee Savings Bonds
Bonds issued by the U.S. government that earn interest for up to 30 years. Series EE Bonds replaced Series E Bonds and are subject to the same taxes.
A statistical value, calculated by dividing a fund's excess return by the standard deviation of those returns, that measures the relative reward of holding on to risky investments. The higher the ratio, the greater the potential for return for the same amount of risk. The lower the ratio, the worse the fund's historical risk-adjusted performance.
Shares issued by small companies, typically with market capitalizations of $2 billion or less.
Social Security Statement
The Social Security statement shows your estimated benefit upon retirement. It can be obtained by calling the Social Security Administration at (800) 772-1213 or by visiting the website at www.ssa.gov.
Statistical measure that shows how much an investment's return may vary from its average over any given period. The larger the standard deviation is in relation to an investment's return, the more volatile that investment is.
A share of ownership in a company, typically traded on one or more exchanges. Owners of stock usually receive voting rights on issues affecting the company and may receive a portion of the company's profits in the form of dividends.
Estate planning concept used to extend the financial life of an IRA across multiple generations. The strategy lets an IRA's original beneficiary transfer, upon death, the IRA assets to his or her own beneficiary without triggering an immediate income tax liability. Such flexibility provides an opportunity to stretch an IRA's tax-deferred growth potential longer than initially intended.
An individual, organization, or institution that is named to assume the management responsibilities of a trust following the death, incapacitation, or resignation of the originally named trustee.
Survivorship Life Insurance
Also known as second-to-die and last-to-die, this method of life insurance coverage pays a benefit upon the death of the last surviving insured person. Survivorship life is typically used as an estate-planning tool.
Target Maturity Fund
A fund that holds a mix of investments appropriate for a particular date in the future and is regularly rebalanced to maintain suitable risk exposure as that maturity date nears. Also known as a target-date fund.
The postponement of taxation on an investment until a later time. Tax deferral is widely viewed as a benefit to investing within a traditional IRA or 401(k) or to purchasing some life insurance products. The principle of tax deferral aids in the pursuit of long-term investment growth. Tax-deferred assets in a traditional IRA or 401(k) may be subject to a 10% additional federal tax if withdrawn prior to age 59½.
The pre-tax rate that a taxable bond must yield to generate the same income as a municipal bond, which is exempt from paying taxes on income on some government level. This figure, which will vary depending on the investor's individual tax bracket, helps compare the real earnings potential of a taxable investment with a tax-free investment.
A detailed study by financial professionals of various business and market data intended to provide insight into future developments and trends.
A type of generally lower-risk savings vehicle, such as a certificate of deposit, with maturities typically ranging from seven days to several years. Time deposits often pay a higher interest rate than traditional savings accounts, but penalties may apply for withdrawing money before maturity.
Total Annual Operating Expenses
The term operating expenses is used to describe the costs that an investment manager incurs when it seeks to produce returns with the investor’s assets. Operating expenses effectively reduce any gross returns that might be earned by the fund. Costs in this category may include investment management fees, distribution fees, service fees, administrative expenses, separate account expenses, and mortality-risk and expense-risk fees. They may also include custodial expenses, legal expenses, accounting expenses, transfer agent expenses, and recordkeeping fees. Total annual operating expenses are generally reported as a percentage of the value of the investment.
A measure of a fund's performance that encompasses all elements of return: dividends, capital gains distributions, and changes in net asset value. Total return is the change in the value of an investment over a given period, assuming any reinvestment of dividends or capital gains distributions, expressed as a percentage of the initial investment.
Traditional 401(k) Plan
An employer-sponsored investment plan for retirement. Employees make pre-tax contributions to the plan, and all contributions and earnings grow tax-deferred until withdrawn, when ordinary income taxes apply. Withdrawals prior to age 59½ may be subject to a 10% additional federal tax. Employers may match a portion of employees' contributions.
A retirement account to which you can contribute up to a specified amount each year (the maximum amount is determined by Congress). Individuals aged 50 and older may also be eligible to make additional annual catch-up contributions (up to a specified amount). IRAs give your money the potential to grow tax-deferred and, depending on your personal circumstances, contributions may be tax deductible (withdrawals prior to age 59½ may be assessed a 10% additional federal tax). Withdrawals from traditional IRAs are taxed at then-current rates.
Short-term debt securities issued by the U.S. Treasury, "T-bills" sell at a discount to their par (face) value and mature in less than a year. The interest an investor earns is the difference between the buying price and the amount paid at maturity.
An agreement in which a grantor transfers assets to a trustee for the purpose of benefiting one or more beneficiaries.
The administrator of a trust.
U.S. Savings Bonds
Represent loans to the federal government, to be repaid in full, with interest, at a specified future date known as the maturity date. Series EE bonds issued today are sold at face value.
Unlimited Marital Deduction
This provision of federal estate tax laws allows individuals to leave their entire estate to a surviving spouse tax free if the surviving spouse is a U.S. citizen.
Mutual funds that invest in stocks that generally have fallen out of favor in the marketplace and are often priced much lower than stocks of similar companies in the same industry.
An annuity that allows you to invest your money in accounts offering variable rates of return, such as stock or bond portfolios. As a result, your premium dollars may be exposed to risk generally associated with investing in the markets.
The day-to-day (or year-to-year) fluctuation in the value of publicly traded securities and, by extension, broad markets.
Zero Coupon Bond
A type of bond that does not pay regular interest, but is sold at a deep discount from its stated principal amount.