A retirement account to which an eligible employee can contribute a certain amount of his or her pre-tax salary; earnings are tax-deferred. Some employers may match a stated percentage of employee 401(k) contributions. The reduced cost and liability of 401(k) plans appeal to employers.
A loan taken out of a 401(k) retirement account. Such loans (with interest) are usually paid back through payroll deductions. If an individual with a 401(k) loan leaves his or her job, the full amount of the loan becomes due. If he or she fails to repay the loan, it is considered a distribution, with the associated income taxes and early withdrawal tax penalty.
A qualified retirement plan similar to the 401(k), available to employees of nonprofit and government organizations.
The net of credits and debits for an account at the end of a reporting period.
The process of ensuring that the beginning balance plus the sum of all entries on an account statement equals the ending balance. After deposits, interest received, and credits are added and automatic withdrawals, outstanding checks, negotiated checks, and account charges are subtracted, if the resulting balance equals the ending balance on the statement, the account is reconciled.
A person who participates in a qualified pension, stock bonus, or profit-sharing plan, a qualified annuity plan, a tax-sheltered annuity (TSA) plan, a simplified employee pension plan, or a local, state, county, or federal retirement plan has active-participant status, as does his or her spouse.
A person who analyzes probability and risk estimates for insurance contracts and retirement plans.
Adjustable Rate Mortgage (ARM):
A mortgage with an interest rate that changes periodically based on a measure or an index, such as the rate on US Treasury bills or the average national mortgage rate. Borrowers assume a degree of risk in order to receive a lower rate at the beginning of an ARM.
Adjusted Gross Income (AGI):
The amount of income subject to federal income taxes. To determine AGI, subtract deductions (e.g., business expenses or IRA contributions) from gross income (employment income, interest income, dividends, and capital gains).
Money received from an employer before it is actually earned.
Aggressive Growth Fund:
A mutual fund designed to maximize long-term capital growth, rather than dividend income, by investing in narrow market segments, small company stocks, and companies with high growth rates.
The formula that governs employer contributions to employee profit-sharing plans and redistributes funds forfeited by employees who leave these plans.
Alternative Minimum Tax (AMT):
A tax calculation designed to prevent taxpayers from escaping their fair share of tax liability by taking numerous tax breaks; it adds certain tax preference items back into adjusted gross income. If AMT liability is greater than regular tax liability, the taxpayer must pay the AMT amount.
American Stock Exchange (AMEX):
A stock exchange located in downtown Manhattan, with the third highest trading volume in the U.S. Most trading on the AMEX consists of index options and shares of small to medium-sized companies.
A way of measuring the consumption of the value of long-term assets like equipment or buildings. This process gradually eliminates a debt, loan, or mortgage over a period of time. It can also be used to deduct capital expenses over a period of time.
Annual Percentage Rate (APR):
The yearly cost of credit or a loan, expressed as a simple percentage. All consumer credit agreements and loans are legally required to disclose the APR.
A yearly statement that describes company management, operations, and financial information. The Securities and Exchange Commission (SEC) requires all corporations issuing registered stock to publish annual reports, which are sent to shareholders and also made available for public review.
The person to whom an annuity is payable.
A long-term contract sold by life insurance companies that guarantees fixed or variable payments to the purchaser at regular intervals. Payments are usually scheduled to begin at a future time, such as retirement. Some annuities provide tax-deferred earnings, often as part of retirement plans.
Annuity Cash Refund:
The contract for an annuity offering income for life may include a death benefit for the total premiums paid. When the annuitant dies, the annuity cash refund will be the net sum of premiums paid minus the amount received in annuity payments.
An option in an annuity contract that allows the annuity owner to select a future level of income covering a specified number of years (generally 10 years). If the annuitant dies before the end of this period, the remaining obligation is transferred to a designated beneficiary.
Annuity Joint and Survivor:
An annuity option that provides payments for two designated annuitants. Upon the death of the first annuitant, the surviving annuitant receives prearranged, continued payments for life, based on a percentage received by the first annuitant.
Annuity Joint Life:
An annuity option for two or more individuals where payments cease at the death of the first annuitant.
Annuity Modified Refund:
In a contributory retirement plan, the annuity beneficiary of a deceased retiree receives the accumulated balance of the pension fund, which is referred to as the annuity modified refund.
Annuity Payout Option:
The choice of how payments from an annuity will be received: as a fixed dollar amount, for a fixed period, or over the lifetime(s) of one or two annuitants.
A fee to process a loan application.
An assessment of a property's value by a qualified appraiser, based on information from recent sales of similar properties.
Any property with a cash value that is expected to provide future benefit, such as real estate, equipment, savings, or investments.
A process that divides investments among different asset classes, such as stocks, bonds, and cash, in order to reduce portfolio risk.
A specific category of assets or investments, such as cash, bonds, stocks, or real estate. Assets in the same class have similar characteristics and behave similarly in the marketplace.
The legal transfer of ownership of an asset to another person or entity.
Automatically depositing mutual fund dividends or capital gains back into an account to buy additional shares.
A type of mortgage with a final payment that is considerably larger than the preceding payments, typically used when borrowers anticipate receiving a large sum of cash to pay the balance or when they expect to refinance before the final payment.
The state of being insolvent or unable to pay outstanding debt. Declaring bankruptcy is expensive, and it can have adverse effects on one's credit in the future. These are some common ways to apply for bankruptcy:
A debtor (individual) is declared bankrupt, and a court-appointed trustee initiates a liquidation process and a discharge of all eligible debts. The debtor has no financial sources to attempt a reorganization. A separate taxable entity is created.
A debtor (business, individual, or partnership) is declared bankrupt but is allowed reorganization to attempt debt repayment. Creditor approval is required. A separate taxable entity is created.
A debtor (individual or sole proprietor) is declared bankrupt but is allowed to retain estate-related assets and restructure debt obligations for eventual payment. No creditor approval is required.
The total original cost (including any additional outlays) of an equity investment or a piece of property. This is used by the Internal Revenue Service to compute taxable gain, profit, or appreciation.
A measurement of variation in financial instruments, equal to .01%. For example, a yield that has increased from 8.97% to 9% has increased by 3 basis points.
An extended period during which market prices decline. The opposite of a bull market.
The person or entity named in a will, life insurance policy, qualified retirement plan, or annuity who will receive benefits upon the death of the insured or the plan participant.
A measure of a security's price volatility relative to an appropriate market index. For example, the S&P 500 index is considered to have a beta of 1; stocks with betas greater than 1 experience more price fluctuations than that index, while the prices of stocks with betas less than 1 fluctuate less often.
The common stock of a company with a reputation for quality and a long history of earnings growth and dividend payments, such as General Electric, IBM, or DuPont.
A debt security issued by a corporation, government, or governmental agency that obligates the issuer to pay interest at predetermined intervals and repay the principal at maturity. A bond's face value is the amount of money the holder will receive when the bond matures. The face value does not change, but the bond's market value may fluctuate before maturity.
A financial professional who facilitates the trading of services or property, such as securities, real estate, insurance, or commodities.
A report of projected income and expenses for a given period.
An extended period of rising security prices in financial markets. The opposite of a bear market.
A plan for future transfer of a business entity, involving legal, financial, tax, and family concerns.
An investment strategy that advocates holding securities for the long term and ignoring short-term price fluctuations.
A contract that provides for the purchase of all outstanding shares from a business owner; generally, such contracts allow for a different ownership structure in the future.
Cafeteria Employee Benefit Plan:
A plan offering a variety of benefit options from which employees may choose, such as health insurance, life insurance, and retirement benefits.
Capital Gains Distribution:
A payment to shareholders of profits realized on the sale of an investment company's securities.
Capital Gains Tax:
A tax on profits from the sale of securities or other assets.
A decrease in the value of an investment or capital asset from its purchase price.
An instant loan against a line of credit. Interest is usually charged on cash advances from the date the advance is made until it is repaid. Issuers may also charge transaction fees.
An accounting method that counts cash inflows or outflows when they are actually expended or received (as opposed to accrual basis).
A budget used to quantify an immediate short-term cash flow.
The aggregate of all cash inflows and outflows; can be expressed as positive cash flow or negative cash flow.
The process of channeling cash into expenditures that enhance productivity.
Cash Surrender Value:
The amount the policyowner receives when voluntarily terminating a cash value life insurance or annuity contract before its maturity or before the insured event occurs.
Sudden and unexpected losses due to damage, destruction, fire, or theft, for which one can be compensated by insurance contracts.
Certificate of Deposit (CD):
An agreement with a commercial bank in which funds are deposited at a fixed interest rate for a specified period of time. CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. There may be a penalty if funds are withdrawn before the CD reaches maturity.
A request for payment from an insurance policy.
An assessment of an insurance company's ability to pay claims.
The end of a trading session or the process of transferring real estate from a seller to a buyer.
Costs involved in transferring real estate from a seller to a buyer, over and above the price of the property. These can include charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Closing costs do not include points or the cost of private mortgage insurance (PMI).
Cloud on Title:
A claim, lien, or right on real estate that requires a quitclaim deed to resolve the potential hindrance before the title can be transferred.
Combined Financial Statement:
A side-by-side accounting of balance and net worth statements for several affiliated business enterprises.
A loan intended for short-term financing of a business, based on the creditworthiness of the business and/or owner and the prime lending rate.
An unsecured, short-term debt instrument used by corporations with high-quality debt ratings to fund short-term liabilities. Generally considered a safe investment.
The fee charged by an agent or broker for facilitating a transaction.
A written agreement specifying the terms and conditions of a mortgage.
A security that represents partial ownership or equity in a corporation. Holders of common stock are entitled to participate in the company's stockholder meetings and vote for the board of directors.
A process in which income and gains on an investment are reinvested to grow further. When you earn compound interest, you earn interest on both the principal amount and the accumulated interest as it is earned.
Construction Loan Note:
A short-term obligation used to fund a construction project. In most cases, the issuers (such as a city government) will repay the note obligation by issuing a long-term bond.
A secondary beneficiary who receives insurance benefits if the primary beneficiary revokes his/her status, is ineligible, or is deceased.
An obligation to pay if certain future events occur. This can also refer to a defined obligation for which the chances of payment are minimal.
Convertible Term Insurance:
An insurance policy that allows the policyholder to convert the face amount of coverage in term insurance to an identical amount of whole life insurance.
A debt security issued by a corporation that obligates the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds often have higher interest rates than government bonds due to possible default risk.
A group of people acting jointly for business and tax purposes who are able to incur debt and realize profit without immediate legal or taxable liabilities. A corporate entity allows its owners to attract outside capital by selling shares of ownership, protects the owners from liability beyond their investment outlay, provides for continuity of operations beyond the lives of the current owners, and allows changes in ownership through transfer of shares.
A reverse movement in the price of a stock, bond, commodity, or index that brings it more in line with its underlying fundamental value.
An individual who signs a loan or credit card agreement along with the principal applicant and assumes responsibility for the outstanding balance if the applicant defaults.
Covenant not to Compete:
A clause in a contract that obligates one party to refrain from performing professional or business activities similar to those of the other party.
Coverdell Education Savings Account (Coverdell ESA):
A federal program that allows parents to accumulate tax-free savings for a child's college education, formerly called the Education IRA.
A record of how a party has paid past debts.
A revolving agreement that allows a person to borrow any amount up to a preapproved limit for purchases or cash advances. When the outstanding balance is paid off, credit again becomes available to fund new purchases or cash advances.
A formal assessment of an individual or corporation's ability to handle credit, based on history of borrowing and repayment, as well as the availability of assets and the extent of liabilities.
A card issued by a bank that can be used to withdraw cash from an automated teller machine (ATM) or to make purchases at merchant locations. Debit cards deduct funds from the checking or savings account linked to the card when they are used.
A legal obligation to deliver a product, service, or amount of money.
The ratio that indicates a company's ability to repay outstanding creditors. This also indicates the degree of leveraged money to improve shareholder rates of return.
Decreasing Term Insurance:
A term insurance policy with a death benefit that decreases over time, often used in conjunction with a mortgage or other amortized debt to guarantee payment if the holder dies before it is paid off.
A document that identifies legal ownership of real estate.
An annuity that pays an income or lump sum at a future date.
Defined Benefit Plan:
An employer-funded and employer-controlled retirement plan that pays a predetermined benefit based on an employee's years of service and salary or wages.
:Defined Contribution Plan:
A retirement plan to which an employer contributes a fixed amount or percentage of the employee's salary each year. The employee may be allowed to make individual contributions and/or choose the investment mix for his or her account.
The opposite of inflation: reduction in the price of goods and services. Possible causes of deflation are a decrease in the supply of money or credit or reduced individual or government spending.
A person who relies on another for financial support; taxpayers who support dependents can claim tax exemptions for them.
Funds used as collateral for the delivery of a good (such as a security deposit); also refers to the transfer of funds to another party for safekeeping (such as a deposit into a bank account).
The decrease in value of a fixed asset during its projected life expectancy, or the decrease in value of one currency in relation to another.
A financial instrument whose characteristics and value depend on the value of an underlying instrument or asset, such as a commodity, bond, equity, or currency. Futures and options are types of derivatives.
The tax-free transfer of money or property from one retirement plan or account to another.
A policy that provides an income if total disability prevents the insured from working.
A broker who buys and sells securities at lower rates than a full-service broker, and who may offer fewer services.
An investment strategy that spreads investment risk over a number of industries, market sectors, or companies, allowing gains in one area to offset losses in another.
A distribution of earnings to a shareholder or mutual life insurance policyowner, usually in the form of money or stock.
Dollar Cost Averaging:
A strategy that invests a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low and fewer shares when prices are high, usually resulting in a lower average cost per share.
The result of tax laws that cause the same earnings to be taxed twice; for example, C corporations are taxed at the corporate level, and their shareholders also pay taxes on the dividends they receive.
Dow Jones Industrial Average (DJIA):
The price-weighted average of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE), representing 15-20% of the market value of NYSE stocks.
Removing funds from a fixed-rate investment before the maturity date or from a tax-deferred investment account before a predetermined time.
Computerized network services that allow bank account holders to securely access their accounts on the Internet.
Electronic Commerce (E-Commerce):
The use of the Internet to conduct business and buy or sell goods and services.
Electronic Funds Transfer System (EFTS):
A process by which funds are electronically transferred between accounts, allowing for direct deposits or withdrawals without processing written checks.
Employee Retirement Income Security Act (ERISA):
A 1974 law establishing government oversight and federal limitations for pension and retirement plans.
Employee Stock Ownership Plan (ESOP):
An employer-sponsored program that encourages employees to purchase shares in the company they work for and possibly participate in management.
Assets, funds, or property donated to an individual, organization, or group to be used as a source of income.
Anything that represents ownership interests, such as stock in a company. Can also refer to the difference between an asset's current market value and the debt against it.
A loan that allows a homeowner to borrow against the accumulated equity in his or her home.
A third-party agent or account that assumes possession of a contract, a deed, or money from a grantor until all outstanding obligations or commitments are complete, whereupon the property held in escrow is delivered to the grantee.
The process of determining the disposition of a person's assets after death.
Federal and/or state taxes levied on the assets of a person who dies, paid by the decedent's estate rather than by the heirs.
The amount above the specified amount upon which calculations for future benefits are based, in a pension plan integrated with federal old-age, survivors', and disability insurance (OASDI).
The person who is named in a will to administer the distribution of the deceased's assets.
Family Limited Partnership (FLP):
A partnership of family members that helps arrange for generational transfers of wealth or a business, maintain control within the general partners, and reduce potential liability to the transferor and transferee.
Federal Reserve System (The Fed):
The board of governors that oversees the Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.
An individual who provides investment advice for a fee, who exercises discretionary authority or control in managing assets, or who is responsible for holding assets in trust and investing them for the benefit of another party.
Financial support that a student receives to attend school, including loans, grants, scholarships, and work-study programs.
A written record of the financial circumstances of a company, firm, or organization.
First-to-Die Life Insurance:
A life insurance policy covering two or more people that pays a death benefit when the first person dies.
An investment contract sold by a life insurance company that guarantees regular payments to the purchaser for life or a specified period of time, in exchange for a premium paid either in a lump sum or in installments.
A mortgage with a set interest rate that remains the same over the life of the loan.
The constant renewal of government Treasury bills or short-term corporate bonds to pay off current liabilities or finance cash flow.
Insurance against flood damage, usually required by mortgage lenders if a property is located in a flood zone.
For Sale By Owner (FSBO):
When a homeowner sells his or her home directly to another party, without the assistance of an agent or broker.
The legal procedure by which a mortgage holder can seize the property of a borrower who has not made required payments.
Nonvested employer contributions from the accounts of employees who leave an employer's pension plan. These may be applied as credits to remaining employee accounts or used to offset future employer contributions.
A license that allows a designee to sell and market a company's products or services in a fixed geographic area.
Opportunities and services offered beyond wages or salary in compensation for employment. Common fringe benefits include paid holidays, sick days, paid vacation days, insurance coverage, or retirement plans.
A sales fee (load) that is paid up front by investors when they purchase an investment and deducted from the investment amount, thus lowering the size of the investment.
Agreements to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future date.
All the financial accounts and statements of a business, including debits, credits, and balances.
An authorized agent of a partnership and of all other partners for all purposes within the scope and objectives of a business.
A voluntary transfer of assets or property with no compensation.
A tax levied on assets transferred from one person to another, paid by the donor.
The offering of financial incentives or benefits to persuade an older employee to retire early.
Benefits given to a valued employee to persuade him or her to remain with the company.
A benefits package given to top executives who are laid off due to a corporate buyout or takeover.
A debt security issued by the U.S. government: two common types are savings bonds and marketable securities.
A period of time after the due date of a payment during which the overdue payment may be made without penalty or lapse in contractual obligations.
The total dollar value of a person's assets at the time of death, before taxes and other debts.
Gross Monthly Income:
Total monthly income from all sources, before taxes and other expenses.
Group Life Insurance:
A life insurance policy that insures a group of people, often provided as an employee benefit.
An individual who has legal responsibility for a minor child or a legally incapacitated adult.
Health Savings Account (HSA):
An account that offers individuals covered by high-deductible health plans (HDHPs) tax-favored opportunities to save for medical expenses.
Highly Compensated Employee (HCE):b
For benefit plan purposes, an employee who receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels.
The difference between a home's current market value and the sum of all claims against it.
A federal tax credit that compensates families for a certain amount of tuition per student per year for the first two years of post-secondary education.
The combined income of all household members from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.
The ratio of a person's monthly housing payment to his or her total monthly income.
The amount of money a person receives from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.
An hypothetical portfolio of securities that represents a particular market or portion of it, used to measure the amount of change in a particular security by comparing it to similar companies.
Individual Retirement Account (IRA):
A tax-deferred retirement savings account that allows individuals to contribute a limited amount per year.
The general rise in the prices of goods and services that occurs when demand increases relative to supply.
Initial Public Offering (IPO):
A company's first public offering of stock.
Not having enough money in a bank account to cover a specific check.
An insurance applicant's likelihood of being accepted by an insurer, based on health, occupation, lifestyle, and finances.
A vested financial interest in the life of another person.
An individual who is covered by an insurance policy.
A nonphysical resource that provides a gainful advantage in the marketplace (e.g., copyrights, software, logos, patents, goodwill, and other intangibles).
An employee pension plan included with Social Security benefits or with Old-Age, Survivorship, and Disability Insurance (OASDI) contributions.
The financial value that human innovations and intelligence bring to a business enterprise.
The cost of borrowed money, whether you receive it from an investment or pay it for a loan. Also, an interest can mean a right or share in an asset or property.
The cost of borrowed money expressed as a percentage for a given period of time, usually one year.
Internal Rate of Return (IRR):
The theorem of compounding interest in reverse, or discounting. IRR is important in planning capital outlays and evaluating rental real estate investments.
The financial goal of an investment.
A trust that cannot be altered or canceled without the permission of the beneficiary or trustee. The grantor gives up all ownership rights to the assets and the trust in such cases.
A form of property ownership in which two or more people own an undivided interest in the property. When one joint owner dies, ownership automatically passes to the surviving joint owner(s).
A tax-deferred defined benefit or contribution plan that a self-employed individual can set up.
An employee whose skills, knowledge, or abilities are crucial to the ongoing operation of the company. This term is used in applying top-heavy tests for qualified referral plans under the Internal Revenue Code (IRC) Section 416.
Key Person Insurance:
An insurance policy that reimburses a company for the loss of a key employee.
An insurance policy that is canceled for nonpayment of premiums, or canceled before it has cash or surrender value.
A contract granting the use of real estate or another fixed asset, such as a vehicle, for a specific period in exchange for periodic payments.
Leaseback (Sale and Leaseback):
An arrangement in which the seller of an asset leases that same asset back from the purchaser. For example, a business owner may sell the business's office building to raise cash, then arrange to lease the building from the new owner so the business can remain at its present location.
An agreement where a portion of each lease payment applies to a future purchase of the leased property or in which the leaseholder has the right to buy the property during or at the conclusion of the lease term.
A person or organization that parts with something of value for a stated or open duration of time in exchange for specific compensation.
Letter of Credit:
A document by which a bank substitutes its creditworthiness for that of a recipient customer and buyer in a sales transaction.
Level Premium Term Insurance:
A life insurance policy for which premiums remain the same from year to year for a specified period.
Something for which one is held liable, such as an obligation or debt. Financial liabilities can include loans, mortgages, accounts payable, deferred revenues, and accrued expenses, among others.
An annuity that provides income for life.
The time period from the beginning to the end of the life of an individual, product, or business. Corporate business entities frequently have life cycles that extend beyond those of their founders or current owners.
The average number of years that an individual of a given age is expected to live, based on factors such as gender, heredity, and health.
A contract in which the insured pays a premium to an insurance company in exchange for a defined payment to a beneficiary (usually a family member) upon his or her death. Available types of life insurance include term life, whole life, and universal life.
Lifetime Learning Credit:
A federal tax credit for qualified higher education expenses incurred to learn or improve job skills.
Limited Liability Corporation (LLC):
A form of business ownership that provides each shareholder with limited liability to the extent of invested capital.
An investment affiliation consisting of a general partner and limited partners. The general partner, in return for fees and a percentage of ownership, manages business operations and is ultimately liable for any debt. Limited partners may receive income, capital gains, and tax benefits in return for their investment, but have little involvement in management.
Cash and short-term investment vehicles (e.g., commercial paper, checking accounts, account receivables, and Treasury bills).
The ability to quickly convert assets into cash without significant loss.
A ratio that quantifies a company's ability to discharge debt obligations maturing within one year.
A trust established by a living person who controls the assets he or she contributes to the trust.
A document designating another person to make medical decisions for the prinicpal if he or she becomes incapacitated due to accident or illness.
The process of assuring that an interest rate has been set. In the case of a mortgage, there may be a fee to lock in a particular rate.
Long-Term Care Insurance:
An insurance policy that covers long-term health care expenses, such as nursing home care, in-home assistance, assisted living, or adult day care.
When managers or executives of a company buy a controlling interest in their company from existing shareholders. If they pay a premium over the existing fair market value of the outstanding shares, the company then becomes a private corporation without a majority of shares trading on the market.
A charge against an investor's assets for a fund manager's services.
Mandatory Employee Contribution:
Some employee benefit plans require employees to make contributions in order to accrue benefits.
The portion of a security's risk common to all securities in the same asset class; this cannot be eliminated through diversification.
A strategy in which an investor attempts to predict market trends, such as the direction of stock prices or interest rates, and buys and sells securities quickly to turn profits on short-term price fluctuations.
The point in time when a debt, such as a bond, becomes due for payment.
A federal program that covers medical expenses for individuals who are financially unable to afford health care.
A federal program that covers health care for individuals age 65 and over and individuals with certain disabilities.
Medicare Part D:
The prescription drug benefit program for Medicare recipients.
Minimum Participation Requirements:
Generally, a participant must be 21 years old and have been a a full-time employee for one year to receive benefits from an employer-sponsored retirement plan.
Monthly Housing Expenses:
The sum of the principal, interest, and taxes a borrower pays toward housing on a monthly basis, used to determine affordability.
A statistical table showing the death rates of people at various ages.
A tax-exempt bond issued by a state government or agency, or by a town, county, or other political subdivision or district.
National Association of Securities Dealers Automated Quotations (NASDAQ):
A computerized system that facilitates trading and offers price quotes for the most actively traded over-the-counter (OTC) securities.
Total revenue minus total costs, expenses, and taxes.
The amount of asset value exceeding total liabilities.
New York Stock Exchange (NYSE):
The oldest and largest stock exchange in the U.S., listing many of the country's largest corporations.
Noncontributory Retirement Plan:
A pension plan that is funded only by employer contributions with no employee contributions.
In an employee benefit plan, a benefit that is now payable upon any occurrence listed in the employee contract and cannot be forfeited.
An employee benefit plan that does not meet the requirements laid out in Section 401(a) of the Internal Revenue Code and, therefore, is not qualified for favorable tax treatment.
A public officer who can authenticate signatories on documents and take depositions or oaths, authorized by a particular state or jurisdiction. Banks, insurance agencies, legal offices, and government buildings often have notaries public on staff.
The per-share price at which a stock or mutual fund is offered to the public. The market price may be more or less than the offering price.
Old-Age, Survivors, and Disability Insurance (OASDI):
Also known as Social Security: a comprehensive federal benefits program that includes retirement benefits, disability income, veterans' pensions, public housing, and food stamps.
The right to buy or sell a security at a set price on or before a given date. "Call" options are bets that the security will be worth more than the price set by the option (the strike price), plus the price of the option. "Put" options are bets that the security's price will fall below the price set by the option.
Income derived from normal business activities, such as wages and salary, as opposed to capital gains.
A security traded in contexts other than a formal exchange. Can also refer to a market where security transactions are conducted by telephone and computer, rather than on the floor of an exchange.
Additional life insurance coverage, typically purchased with policy dividends.
The face value of a stock or bond when issued, which may bear little relationship to the security's current market value.
A contractual association between individuals who share in the management and profitability of a business venture.
A payment that has not been received by the end of the lender's grace period. Creditors may assess late fees for past due payments and/or report the account holder to a credit reporting agency.
An official license granted by the Patent Office that gives an individual or business the rights to the production or sale of a specific invention, process, or design for a specified period of time.
An employer-provided qualified retirement plan. Types of pensions include defined benefit plans, profit sharing plans, bonus plans, employee stock ownership plans (ESOPs), thrift plans, target benefit plans, and money purchase plans.
Permanent Life Insurance:
A life insurance policy that does not expire and combines a death benefit with a savings portion that the insured can borrow against or withdraw for cash needs. The two main types of permanent life policies are whole life and universal life.
The four components of a mortgage payment: principal, interest, property taxes, and insurance.
An individual who administers government regulations and procedures for an employee benefit program and confirms that all participating employees receive annual reports.
An employer who establishes and perpetuates a qualified employee benefit pension plan.
A measure that quantifies the initial fee charged by a mortgage lender, with each point being equal to 1% of the total loan principal. For example, on a $100,000 mortgage, four points would cost a borrower $4,000.
A legal document that states the terms of an insurance contract, or the contract itself.
A refund that reflects the difference between the life insurance premium charged and the insurer's actual cost of providing coverage.
An item specifically not covered by an insurance policy.
A loan from an insurance company against the cash surrender value of a life insurance policy.
The funds that insurers are required to hold in order to cover all policy obligations.
A provision that can be added to an insurance policy at an additional cost to increase or limit the benefits of the policy.
The person or entity that owns an insurance policy.
An employee's ability to retain his or her benefits after employment ceases.
The combined security holdings of an investor or mutual fund.
Power of Attorney:
A legal document that gives one person the power to perform specified acts or make decisions on behalf of another person, should that person become incapacitated.
A security representing partial ownership or equity in a corporation. Preferred stock does not give the stockholder voting rights, but takes precedence in claims against the company's profits and assets.
Premature or Early Distributions:
Withdrawals from qualified retirement plans before the age of 59˝.
A periodic payment for an insurance policy.
A loan made from an insurance policy to cover premiums.
Repaying installment credit before it is due or paying off a loan before its maturity date.
On a loan without a prepayment clause, the fee a borrower pays for repaying the loan before it is due.
The amount that a future sum of money is worth today, given a specified rate of return.
Price/Earnings Ratio (P/E):
A stock's price divided by its earnings per share; this ratio tells investors how much they are paying for a company's current earnings.
The named beneficiary who receives the proceeds of an insurance policy or annuity contract upon the death of the insured or annuitant.
A standardized short-term borrowing rate established by the Federal Reserve Board.
The original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. "Principal" can also refer to the owner of a private company or the main party in a financial transaction.
Private Letter Ruling:
The Internal Revenue Service's interpretation of a tax situation in light of a particular individual's circumstances. Private letter rulings are nonbinding and do not set precedent for other cases.
Private Mortgage Insurance (PMI):
Insurance that protects the lender in case of default on a mortgage.
Profit and Loss Statement:
A statement that summarizes a company's revenues, costs, and expenses incurred during a specific time period.
A defined contribution plan to which employers contribute a percentage of the company's profits, usually based on the employee's earnings.
A transaction involving an IRA that is forbidden by the Internal Revenue Code, such as borrowing against an IRA, using an IRA as collateral, or investing IRA funds in collectibles.
Anything that has a value and is owned, whether it is tangible or intangible, personal or public, or common.
An official document that must be provided by the issuer to potential purchasers of a new security, containing reports on the financial status of the issuer and the specifics of the issue itself.
A retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code and is eligible for tax-favored treatment.
The highest bid and lowest offer (asked) price currently available for a security.
Rate of Return:
The gain or loss of an investment over a specified period of time, expressed as a percentage of the original investment cost.
An insurance policy that covers a higher risk for a higher-than-usual premium.
Real Estate Investment Trust (REIT):
A security that is traded like a stock on the major exchanges and invests primarily in real estate.
When a company changes its capital structure by exchanging preferred stock for bonds to reduce taxes or to avoid or emerge from a bankruptcy.
The repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.
Required Minimum Distribution (RMD):
The legally required minimum annual amount that must be distributed from a retirement account to an IRA holder or qualified plan participant.
Money that a company receives from the sale of goods and services, before expenses and taxes.
A loan used to turn home equity into tax-free cash payments to the homeowner (borrower), usually to fund retirement needs.
The quantifiable likelihood of loss or less-than-expected returns on an investment.
An investor's ability to handle declines in the value of his or her investment portfolio.
A tax-free transfer of funds from one retirement plan to another.
A type of Individual Retirement Account (IRA) in which contributions are nondeductible. Earnings in a Roth IRA grow tax-deferred and distributions are tax-free if you have owned the account for five years and are at least age 59˝.
Roth IRA Conversion:
The process of converting an existing IRA into a Roth IRA; there are specific income eligibility requirements (through 2009) and income tax consequences for this.
An incorporated business that is a "pass-through" entity for tax purposes.
Salary Reduction Plan:
A qualified retirement program to which employees make tax-advantaged contributions on a pre-tax basis.
A account with a bank or savings and loan company that pays interest on money deposited.
Section 162 (Executive Bonus) Plan:
A life insurance policy for which the insured's employer pays premiums under Internal Revenue Code Section 162.
A credit card guaranteed by a deposit in a savings account or certificate of deposit (CD), with a credit line usually equal to the deposit. If the cardholder defaults on payments, the issuer may apply the deposit toward the balance owed.
Securities and Exchange Commission (SEC):
The primary federal regulatory agency for the securities industry, responsible for promoting full public disclosure and protecting investors against fraudulent and manipulative practices.
A payment required to secure a personal loan, a rental property, or a later purchase.
Self-Directed IRA (SDA):
An individual retirement arrangement that allows a wider choice of investments than an IRA, including stocks, bonds, mutual funds, and money market funds.
The Social Security tax imposed on self-employed individuals.
A financing technique in which an owner sells property directly to a buyer with no mortgage. The title or deed transfers only after full payment, and any foreclosure results in the property reverting to the seller.
The expenses involved in transferring real estate to a buyer from a seller (also called closing costs): these typically include charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. They do not include points or the cost of private mortgage insurance (PMI).
One unit of ownership in a corporation, mutual fund, or limited partnership.
SIMPLE (Savings Incentive Match Plan for Employees) Plan:>br /> A retirement plan that allows employee pre-tax contributions and requires employer matching contributions. All contributions are immediately vested, and the plan can be set up as a 401(k) or IRA.
Simplified Employee Pension Plan (SEP):
A retirement plan that allows both an employer and an employee to contribute to the employee's IRA on a discretionary basis.
The location or position of a property. For intangible property, such as debt, the situs is considered to be the jurisdiction where the debt obligation was issued.
Small Business Association (SBA):
A federal organization that provides programs and opportunities to promote the growth and success of small businesses.
A prepaid card that can be used to purchase goods, services, or admissions, often used at hotels, recreational facilities, and other businesses.
Social Security Tax:
The tax that funds the Social Security system, paid by both employers and employees.
Split-Dollar Life Insurance:
A contract between employer and employee to share the obligations and benefits of a life insurance policy.
An IRA for a nonworking spouse, funded by contributions from the working spouse. The IRS limits the combined amount that married couples may contribute to traditional and spousal IRAs.
Standard & Poor's 500 Index (S&P 500):
An index of 500 of the most widely held common stocks on the New York Stock Exchange (NYSE), used as a measure of the overall health of the U.S. stock market.
A security representing partial ownership or equity in a corporation. Each share of stock represents a proportionate claim against the company's profits and assets.
A document substantiating the legal ownership of shares of stock.
The organized trading of securities in the various market exchanges and the over-the-counter market.
Stock Purchase Plan:
A mechanism for employees to purchase stock in their company.
A distribution of additional shares to each holder of a certain stock in proportion to the shares the individual already owns, with each share's par value reduced to maintain the same total equity. For example, if a stock splits 2-for-1 and you own one share with a $100 par value before the split, you would own two shares with a $50 par value after the split.
A mortgage in which the borrowed amount is due at the maturity date.
Survivorship Life Insurance:
A life insurance policy that covers the lives of two people and pays benefits when the second person dies, often used by couples to fund estate tax liability.
Anything that has a value and physically exists, such as land, machines, equipment, or currency.
A dollar-for-dollar reduction in the amount of taxes an individual owes.
A reduction in tax liability by the percentage of the marginal tax bracket for the taxpayer. For example, a $1,000 tax deduction for a taxpayer in the 25% marginal tax bracket saves only $250 in tax (0.25 x $1,000).
A claim against property for unpaid taxes, which lasts until the claim is satisfied or a statute of limitations takes effect.
A bond issued by a municipal, county, or state government with interest payments that are not taxed.
An annuity that allows employees of government and nonprofit organizations to make pre-tax contributions to a retirement plan up to a predefined annual limit.
A taxpayer's gross income minus all allowable adjustments.
Tenants by the Entirety:
A form of property ownership used by married couples where each spouse theoretically owns 100% of the property; after the first spouse dies, complete ownership passes to the surviving spouse without tax and probate.
Tenants in Common:
Two or more owners who have undivided ownership (not necessarily equal) of a property.
A payout option in an annuity contract that provides income for a specified period of time.
A type of life insurance that pays benefits only if the insured dies within a specific period. Term insurance has no cash value, and premiums usually rise with the insured's age.
The length of time for which an investor plans to hold investments.
A document that identifies legal ownership of property, used to transfer ownership from a seller to a buyer.
A type of insurance that protects against loss due to a defect in a real estate title, such as an ownership dispute or a lien against property.
An inspection of city, town, or county records to determine the legal owner of a piece of real estate property and to find any applicable liens, mortgages, or future interests.
Inability to complete most job requirements based on a physical or mental disability.
The gross annual yield on an investment, including capital appreciation or distributions, interest, dividends, and personal taxes.
A charge for a credit-related activity, such as receiving a cash advance or using an ATM.
Negotiated debt obligations that the U.S. government regularly offers at public auction through the Federal Reserve Bank. Treasury bills, bonds, and notes have varying maturities and yields.
A negotiable debt obligation issued by the U.S. government, also called a T-bill. Treasury bills mature in one year or less, are exempt from state and local taxes, and range in value from $10,000 to $1 million; they sell at a discount based on current interest rates.
Triple Net Lease:
A lease in which the lessee assumes payments for maintenance, taxes, utilities, and insurance and bears the risks associated with these fluctuating expenses.
The party who manages a trust on behalf of a beneficiary or beneficiaries. Trustees may hold titles to property, distribute assets, and oversee investments and payments, among other tasks.
The process by which an insurance company determines whether it can assume the risk of a specific life insurance policy. Alternatively, this can refer to the business of investment bankers, who purchase new issues of securities and resell them to the public.
The state of being "not in gainful employment," in which a person may be eligible for some state and federal benefits.
Uniform Gift to Minors Act (UGMA):
The law that allows an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian; called the Uniform Transfer to Minors Act (UTMA) in some states.
Universal Life Insurance:
A type of life insurance policy that allows the holder to vary the amount and timing of premiums and change the death benefit based on the policyholder's changing needs and circumstances. It also usually includes a cash value savings feature.
Debt that is not guaranteed by collateral.
Variable Interest Rate:
An interest rate that fluctuates according to a measure or an index. Variable rates on loans are usually capped to protect borrowers from dramatic increases in the interest rate.
The process leading to a future time when money or property held in trust will belong to a person; this usually refers to the scheduled confirmation of ownership rights in qualified employee benefit plans.
The relative rate at which the price of a security moves up and down, derived by calculating the annualized standard deviation of daily change in price.
Voluntary Employee Contribution:
A contribution by an employee to a retirement plan in excess of mandatory contributions to his or her plan account.
Waiver of Premium:
An insurance policy rider that waives premium payments if the insured becomes permanently disabled.
Whole Life Insurance:
A type of life insurance that provides coverage for the insured's entire life as long as the policyholder pays the premiums. Whole life insurance also has a cash value component that can be drawn upon to meet financial needs.
The process by which an employer deducts a portion of employee wages for income taxes.
Money that ensures a business's ability to operate on a daily basis.
An investment's annual gain or loss, generally expressed as a percentage.
Yield to Maturity (YTM):
The total return on a long-term interest-bearing investment, such as a bond, that is held until its maturity date.
Zero Coupon Bond:
A bond that makes no periodic interest payments, but sells at a deep discount from its face value. At the maturity date, the investor receives the face value of the bond plus the interest that has accrued.