1035 Exchange

A 1035 exchange refers to a tax-deferred method that allows the owner of certain insurance-related financial products to replace one policy with another without triggering immediate taxation. This provision applies primarily to cash-value life insurance policies and annuity contracts, enabling individuals to reposition assets while preserving tax advantages, provided IRS rules are followed precisely.

401(k) Plan

A 401(k) plan is a qualified, employer-sponsored retirement savings plan that allows eligible employees to contribute a portion of their income on a tax-deferred basis. Contributions and investment earnings are not taxed until funds are withdrawn, typically during retirement. Many employers enhance participation by offering matching contributions, and employees often retain control over investment selections within the plan, benefiting from immediate tax savings and long-term growth potential.

401(k) Loan

A 401(k) loan permits participants to borrow directly from the assets held within their retirement account. These loans accrue interest and are commonly repaid through automatic payroll deductions. If employment ends before full repayment, the remaining balance generally becomes due immediately. Failure to repay converts the loan into a taxable distribution, potentially subject to income taxes and penalties. Under the Tax Cuts and Jobs Act, repayment may be made by the tax filing deadline for the year employment ends, avoiding penalties if completed on time.

403(b) Plan

A 403(b) plan functions similarly to a 401(k), but is specifically designed for employees of non-profit organizations, educational institutions, and certain government entities. It provides tax-deferred retirement savings opportunities and may include employer contributions.

Account Balance

An account balance represents the total amount of funds or obligations recorded in an account at the conclusion of a reporting period. For example, a credit card balance reflects the outstanding amount owed to the lender for purchases made within that billing cycle.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a home loan with an interest rate that fluctuates periodically based on a referenced financial index. These mortgages typically offer lower initial rates than fixed-rate alternatives, transferring some interest-rate risk to the borrower as rates may increase over time.

Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is a foundational figure used in determining federal income tax liability. It is calculated by subtracting allowable adjustments—such as retirement contributions or student loan interest—from gross income.

Administrator

An administrator is an individual appointed by a probate court to oversee the settlement of an estate when no valid will exists. Their responsibilities include managing assets, paying debts, and distributing remaining property in accordance with state law.

After-Tax Return

The after-tax return measures an investment’s performance after accounting for all applicable taxes, providing a more accurate assessment of net profitability.

Aggressive Growth Fund

An aggressive growth fund is a type of mutual fund focused on achieving substantial capital appreciation. These funds typically invest in higher-risk securities and are subject to market volatility. Mutual fund investments fluctuate in value and involve risk, including potential loss of principal. All such funds are sold via prospectus, which outlines fees, risks, and objectives and should be reviewed carefully before investing.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) is a parallel tax system designed to limit excessive use of deductions and exemptions by high-income taxpayers. It applies a distinct set of rules to ensure a minimum level of taxation. Eligibility is determined by completing IRS Form 6251.

Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) expresses the total yearly cost of borrowing as a percentage of the loan amount. It includes interest as well as associated fees and charges, offering a standardized comparison between loan products.

Annual Report

An annual report is a comprehensive document required by the Securities and Exchange Commission (SEC) for publicly traded companies. It details financial performance, management discussion, and operational highlights, and must be accessible to shareholders and the public.

Annuity

An annuity is a contractual agreement with an insurance company that provides guaranteed payments either immediately or at a future date in exchange for premium payments. Earnings grow tax deferred until withdrawal. Distributions are taxed as ordinary income, and withdrawals before age 59½ may incur penalties. Guarantees depend on the insurer’s financial strength, and contracts may include fees and surrender charges.

Appraisal

An appraisal is a professional, formal valuation of a property or asset conducted at a specific point in time by a qualified appraiser.

Asset

An asset is any item of economic value owned by an individual or entity that has the potential to provide future benefit.

Asset Allocation

Asset allocation is an investment strategy that distributes capital among different asset classes to balance risk and return. It relies on historical data and mathematical models to optimize outcomes, though it does not guarantee against losses.

Asset Class

An asset class groups investments with similar characteristics and market behavior, such as equities, bonds, or cash equivalents.

Audit

An audit is a formal examination of financial records. In accounting, it assesses accuracy and compliance with standards. In taxation, it refers to the IRS or another authority reviewing a tax return for correctness.

Automatic Reinvestment

Automatic reinvestment allows dividends or capital gains to be systematically reinvested into the originating investment, increasing share ownership over time.

Balanced Mutual Fund

A balanced mutual fund seeks to combine stocks and bonds to achieve both growth and income. Like all mutual funds, it is subject to market risk and sold through a prospectus outlining objectives and expenses.

Bear Market

A bear market describes an extended period of declining asset prices, reflecting widespread investor pessimism.

Beneficiary

A beneficiary is the individual or entity designated to receive proceeds from insurance policies, retirement accounts, trusts, or wills upon the owner’s death.

Blue Chip Stock

A blue chip stock represents ownership in a well-established company with a history of stable earnings and, often, regular dividend payments.

Bond

A bond is a fixed-income debt instrument requiring the issuer to pay periodic interest and return principal at maturity. Bond values fluctuate with interest rates, and higher yields generally involve greater risk.

Book Value

Book value equals a company’s total assets minus liabilities and preferred equity, representing net worth as recorded on financial statements.

Bull Market

A bull market is characterized by sustained increases in asset prices and generally reflects investor confidence and economic expansion.

Buy-and-Hold

Buy-and-hold is a long-term investment strategy emphasizing asset retention despite short-term market volatility.

Buy-Sell Agreement

A buy-sell agreement is a legally binding contract that governs the transfer of business ownership due to death, disability, or exit of an owner. These agreements are frequently funded with life insurance.

Capital Gain or Loss

A capital gain or loss arises from selling an asset for more or less than its purchase price, respectively.

Cash Alternatives

Cash alternatives are highly liquid assets with minimal price volatility, such as money market funds. These instruments are not FDIC insured and may involve limited risk of loss.

Cash Surrender Value

The cash surrender value is the amount payable to a policyholder upon voluntarily terminating a cash-value life insurance policy or annuity prior to maturity, as specified in the contract.

Certificate of Deposit (CD)

A certificate of deposit (CD) is a time deposit offering a fixed interest rate for a defined term. CDs are typically FDIC insured up to statutory limits and provide predictable returns.

Charitable Lead Trust

A charitable lead trust directs income payments to a charitable organization for a defined period, after which remaining assets pass to heirs. Such trusts are governed by complex tax rules and require professional guidance.

Charitable Remainder Trust

A charitable remainder trust provides income to a designated beneficiary during the grantor’s lifetime, with remaining assets ultimately transferred to a charitable organization.

Claim

A claim is a formal request for payment submitted under the terms of an insurance policy.

COBRA

COBRA is federal legislation requiring qualifying employers to offer continued health insurance coverage to eligible employees following job loss or other qualifying events, at the employee’s expense.

Coinsurance or Co-Payment

Coinsurance or co-payment provisions require insured individuals to share a portion of medical costs with the insurer after deductibles are met.

Commercial Paper

Commercial paper consists of unsecured, short-term corporate debt instruments issued to meet immediate financing needs, typically maturing within six months.

Common Stock

Common stock represents ownership in a corporation, granting voting rights and potential dividend income, subject to company performance.

Community Property

Community property laws require most assets and debts acquired during marriage to be jointly owned and divided equally upon divorce. These laws apply in select U.S. states.

Compound Interest

Compound interest is calculated on both principal and previously earned interest, allowing investments to grow at an accelerating rate over time.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is the primary U.S. inflation indicator, measuring changes in the average price level of consumer goods and services.

Convertible Term Insurance

Convertible term insurance allows a term life policy to be converted into permanent life insurance without additional medical underwriting, subject to contractual conditions and insurer guarantees.

Corporate Bond

A corporate bond is a debt instrument issued by a corporation in which the issuing company commits to making regular interest payments and repaying the principal amount on a specified maturity date. The market value of corporate bonds fluctuates in response to changes in prevailing interest rates—when rates rise, bond prices typically fall. Investors who hold bonds to maturity generally receive full principal and interest, provided the issuer does not default. Higher-yielding corporate bonds often carry increased credit and market risk.

Corporation

A corporation is a legally recognized business entity created under state law that exists independently from its owners or shareholders. It can enter contracts, incur debt, earn profits, and be held legally liable. Corporations are subject to corporate taxation, meaning profits may be taxed at the corporate level before any dividends are distributed to shareholders.

Coverdell Education Savings Account (Coverdell ESA)

A Coverdell Education Savings Account is a tax-advantaged account designed to help families save for qualified education expenses. Contributions grow tax deferred, and withdrawals used for eligible educational costs at approved institutions are tax free, subject to income and contribution limits.

Credit Score

A credit score is a numerical representation of an individual’s creditworthiness, based on factors such as payment history, outstanding debt, length of credit history, and types of credit used. Lenders rely on credit scores to evaluate borrowing risk and determine loan terms.

Debt

Debt represents a financial obligation where one party, the debtor, owes money or value to another party, the creditor. Debt may arise from loans, bonds, credit arrangements, or contractual agreements.

Debt-to-Equity Ratio

The debt-to-equity ratio compares a company’s total liabilities to its shareholders’ equity. This metric is commonly used to assess financial leverage and a firm’s ability to meet long-term obligations.

Deduction

A deduction is an allowable expense or adjustment that reduces gross income before taxes are calculated, thereby lowering taxable income.

Deed

A deed is a legal document that formally transfers ownership or interest in real property or assets from one party to another.

Deferred Annuity

A deferred annuity is an insurance contract that accumulates value over time and provides income at a future date. Earnings grow tax deferred until withdrawal. Guarantees depend on the issuing insurer’s financial strength, and early surrender may trigger fees or tax consequences.

Defined Benefit Plan

A defined benefit plan promises a predetermined retirement benefit, often based on salary and years of service. These plans are typically funded and managed by employers, who assume investment risk.

Defined Contribution Plan

A defined contribution plan specifies contribution amounts rather than guaranteed benefits. Retirement income depends on investment performance, and contributions may come from employers, employees, or both.

Deflation

Deflation is the sustained decline in the general price level of goods and services, increasing the purchasing power of money. It is the inverse of inflation and may signal economic contraction.

Dependent

A dependent is an individual who relies on another person for financial support. Tax laws may allow exemptions or credits for those who provide such support, within defined limits.

Direct Rollover

A direct rollover involves transferring retirement assets directly between qualified plans or custodians without taking personal possession of the funds. When executed correctly, no taxes or penalties are incurred.

Disability Income Insurance

Disability income insurance provides partial income replacement if the insured becomes unable to work due to illness or injury, helping maintain financial stability.

Diversification

Diversification is a risk-management strategy that spreads investments across multiple asset classes or securities to reduce exposure to any single investment’s performance. While it helps manage risk, it does not eliminate the possibility of loss.

Dividend

A dividend is a distribution of a company’s earnings paid to shareholders, typically on a quarterly or monthly basis. Dividend amounts may change depending on corporate performance and board approval.

Dollar-Cost Averaging

Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy can reduce the impact of market volatility but does not guarantee profit or prevent loss.

Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average tracks the performance of 30 large, publicly traded companies on U.S. stock exchanges. It is a price-weighted index and cannot be invested in directly.

Early Withdrawal

An early withdrawal occurs when funds are taken from an investment or tax-deferred account before reaching the required age or maturity, often resulting in taxes and penalties.

Employee Stock Ownership Plan (ESOP)

An ESOP is a defined contribution plan that grants employees ownership interest in their employer, typically through company stock allocations.

Employer-Sponsored Retirement Plan

An employer-sponsored retirement plan is established by an employer for employee benefit, including defined benefit plans and defined contribution plans such as 401(k)s.

Equity

Equity represents ownership value after liabilities are subtracted from assets, applicable to both businesses and real estate.

Employee Retirement Income Security Act (ERISA)

ERISA is a federal law governing private-sector retirement plans, setting standards for disclosure, fiduciary responsibility, and participant protections.

Estate Management

Estate management involves planning and administering financial and healthcare affairs during life and distributing assets efficiently upon death.

Estate Tax

An estate tax is imposed on the value of assets transferred at death and is paid by the estate before distribution to heirs.

Exchange-Traded Funds (ETFs)

ETFs are investment funds that trade on stock exchanges like individual stocks and represent diversified portfolios aligned with specific objectives.

Executive Bonus Plan

An executive bonus plan is an employer-funded benefit that provides additional compensation to key executives, often in the form of insurance premiums.

Executor

An executor is the individual appointed to administer a deceased person’s estate according to the terms of a will or probate law.

Federal Income Tax Bracket

Federal income tax brackets categorize income ranges taxed at progressively higher rates, with taxpayers paying each rate only on income within that bracket.

Federal Reserve System (The Fed)

The Federal Reserve System is the central banking authority of the United States, responsible for monetary policy, financial regulation, and economic stability.

Financial Aid

Financial aid includes grants, loans, scholarships, and work-study programs that help students finance higher education.

Financial Statement

A financial statement documents the financial condition of an entity, typically including balance sheets, income statements, and cash flow statements.

Financial Industry Regulatory Authority (FINRA)

FINRA is a self-regulatory organization overseeing U.S. securities firms to protect investors and maintain market integrity.

First-to-Die Life Insurance

First-to-die life insurance covers multiple insured individuals and pays a benefit upon the death of the first insured.

Fixed Annuity

A fixed annuity guarantees a specified interest rate and predictable income payments, with tax-deferred growth and insurer-backed guarantees.

Fixed-Rate Mortgage

A fixed-rate mortgage maintains a constant interest rate throughout the loan term, ensuring predictable monthly payments.

Foreclosure

Foreclosure is the legal process through which a lender repossesses property after the borrower fails to meet loan obligations.

Front-End Load

A front-end load is a sales charge deducted at the time an investment is purchased, reducing the amount invested.

Fundamental Analysis

Fundamental analysis evaluates securities by examining financial statements, economic conditions, and company fundamentals to assess intrinsic value.

Gift

A gift is the voluntary transfer of property or assets without receiving compensation or retaining interest.

Gift Tax

Gift tax is imposed on transfers of property made during a donor’s lifetime, typically paid by the donor and subject to exemptions.

Gross Monthly Income

Gross monthly income is total income earned from all sources before taxes or deductions.

Group Life Insurance

Group life insurance is a type of life insurance coverage that insures members of a defined group, most commonly employees of a company or members of an association. Coverage is typically provided under a single master policy owned by the sponsoring organization, with individual certificates issued to participants. Premiums are often lower than those of individual policies due to pooled risk, and coverage may be offered as an employee benefit.

Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-advantaged savings account available to individuals enrolled in high-deductible health plans. Contributions are generally tax deductible, account earnings grow tax deferred, and withdrawals used for qualified medical expenses are tax free. Unlike Flexible Spending Accounts, unused funds may roll over year to year, making HSAs a long-term healthcare savings vehicle.

Home Equity

Home equity represents the portion of a home’s value that the owner truly owns, calculated by subtracting outstanding mortgage balances or other liens from the property’s current market value.

Income

Income includes all forms of compensation or monetary gain received from any source, such as wages, salaries, bonuses, interest, dividends, Social Security benefits, retirement income, disability payments, and unemployment compensation. Unless explicitly exempt by law, income is generally subject to taxation.

Index

An index is a statistical measure that tracks the performance of a specific group of securities intended to represent a particular segment of the market. Prominent examples include the Dow Jones Industrial Average, the S&P 500, and the Russell 2000. Index performance is used as a benchmark; individuals cannot invest directly in an index.

Individual Retirement Account (IRA)

An Individual Retirement Account (IRA) is a tax-advantaged retirement savings vehicle for individuals. Contributions to a Traditional IRA may be deductible depending on income and participation in employer-sponsored plans. Earnings grow tax deferred, and withdrawals are taxed as ordinary income. Required Minimum Distributions (RMDs) generally begin at age 73, and early withdrawals may incur penalties.

Inflation

Inflation refers to a sustained increase in the general level of prices, reducing purchasing power over time. In the United States, inflation is primarily measured through the Consumer Price Index (CPI) published by the Bureau of Labor Statistics.

Initial Public Offering (IPO)

An Initial Public Offering (IPO) marks the first time a privately held company offers its shares to the public. Investment banks underwrite the offering, and shares are sold at an initial price before trading freely in the open market. Post-IPO share prices may fluctuate significantly based on market demand and company performance.

Interest Rate

An interest rate is the cost of borrowing money or the return earned on invested capital, expressed as a percentage over a specified period, typically one year.

Intestate

An estate is considered intestate when an individual dies without leaving a valid will. In such cases, state law determines how assets are distributed and who may serve as guardian for minor children.

Investment Objective

An investment objective defines the financial goal of an investment, such as income generation, capital growth, or preservation of principal.

Irrevocable Trust

An irrevocable trust is a trust arrangement that cannot be modified or terminated once established without consent from beneficiaries or the trustee. These trusts are commonly used for estate planning and asset protection but are governed by complex tax regulations.

Joint Tenancy

Joint tenancy is a form of property ownership in which two or more individuals share equal ownership rights, with the distinguishing feature of right of survivorship, meaning ownership automatically transfers to surviving owners upon death.

Jointly Held Property

Jointly held property refers to assets owned by multiple parties simultaneously, with equal rights of use. Common forms include joint tenancy, tenancy in common, and community property, depending on jurisdiction.

Keogh Plan

A Keogh plan is a tax-deferred retirement plan designed for self-employed individuals and unincorporated business owners. Contribution limits are typically higher than those of traditional IRAs, and distributions are taxed as ordinary income.

Key Employee

A key employee is an individual whose skills, expertise, or leadership are critical to the success and continuity of an organization.

Key Person Insurance

Key person insurance is a company-owned insurance policy intended to offset financial losses that may occur if a key employee dies or becomes disabled.

Life Insurance

Life insurance is a contractual agreement under which an insurer pays a specified benefit upon the insured’s death in exchange for premium payments. Policy costs depend on factors such as age, health, coverage amount, and policy type. Guarantees rely on the insurer’s claims-paying ability, and early surrender may result in fees and tax consequences.

Liquidity

Liquidity describes how quickly and easily an asset can be converted into cash without significantly affecting its market value.

Living Trust

A living trust is created during an individual’s lifetime, allowing the grantor to retain control of assets while specifying how they should be distributed after death. Living trusts are often used to avoid probate.

Living Will

A living will is a legal document that outlines an individual’s preferences for medical treatment if they become incapacitated and unable to communicate decisions.

Long-Term-Care Insurance

Long-term-care insurance covers expenses associated with chronic illness, disability, or aging-related care needs, including nursing home care, assisted living, and in-home services.

Lump-Sum Distribution

A lump-sum distribution is a one-time payment of the entire balance from a retirement plan, pension, annuity, or similar account, rather than periodic payments.

Management Fee

A management fee is a charge assessed for professional management of investment assets, usually expressed as a percentage of assets under management and disclosed in the prospectus.

Marital Deduction

The marital deduction allows individuals to transfer an unlimited amount of assets to a spouse during life or at death without incurring gift or estate taxes.

Market Risk

Market risk, also known as systemic risk, refers to the possibility that an entire market or asset class will decline, negatively affecting investments regardless of individual security performance.

Market Timing

Market timing is an investment strategy that attempts to predict market movements in order to buy and sell assets at advantageous moments. This approach carries significant risk and is difficult to execute consistently.

Maturity

Maturity is the date on which a debt instrument, such as a bond or note, becomes due and the issuer is obligated to repay the principal to the investor.

Medicaid

Medicaid is a joint federal and state healthcare assistance program designed to provide medical coverage to individuals and families with limited income and financial resources. Eligibility is means-tested, requiring applicants to demonstrate financial need. Coverage and qualification rules may vary by state within federal guidelines.

Medicare

Medicare is a federal health insurance program primarily serving individuals aged 65 and older, as well as certain younger individuals with disabilities or end-stage renal disease. The program consists of multiple parts covering hospital care, medical services, prescription drugs, and supplemental insurance options.

Money Market Fund

A money market fund is a type of mutual fund that invests in short-term, highly liquid instruments such as Treasury bills, commercial paper, and other cash-equivalent securities. These funds aim to preserve capital and maintain a stable net asset value, typically $1.00 per share. However, money market funds are not FDIC insured and can lose value under certain market conditions.

Municipal Bond

A municipal bond is a debt security issued by a state, city, county, or other governmental entity to finance public projects. Interest income is generally exempt from federal income tax and may also be exempt from state and local taxes. Municipal bonds are subject to interest-rate risk, credit risk, call risk, liquidity risk, and in some cases, the Alternative Minimum Tax.

Municipal Bond Fund

A municipal bond fund is a mutual fund that invests primarily in municipal bonds. These funds seek to provide tax-advantaged income but are subject to market risk, interest-rate fluctuations, and credit risk. Shares are sold by prospectus, which details objectives, fees, and associated risks.

Mutual Fund

A mutual fund is a pooled investment vehicle managed by an investment company. It aggregates capital from multiple investors and invests according to a stated investment objective. Mutual funds are subject to market risk, and share values may fluctuate. Investors buy and sell shares at net asset value, as disclosed in the fund’s prospectus.

National Association of Securities Dealers Automated Quotations (NASDAQ)

NASDAQ is a major U.S. stock exchange known for its electronic trading platform. Established in 1971, it was the world’s first fully electronic stock market and is home to many technology-focused and growth-oriented companies.

Net Asset Value

Net Asset Value (NAV) represents the per-share value of a mutual fund or ETF and is calculated by dividing the total market value of all assets minus liabilities by the number of outstanding shares.

Net Income

Net income is a company’s total revenue minus operating expenses, interest, taxes, and other costs. Often referred to as the “bottom line,” it reflects overall profitability during a given period.

Net Worth

Net worth is the difference between total assets and total liabilities for an individual or organization. It serves as a broad indicator of financial health.

New York Stock Exchange (NYSE)

The New York Stock Exchange (NYSE) is one of the world’s largest and most influential stock exchanges, located on Wall Street in New York City. It facilitates trading of publicly listed securities under regulated conditions.

Non-contributory Retirement Plan

A non-contributory retirement plan is funded entirely by employer contributions, with no financial input required from employees.

Non-qualified Plan

A non-qualified plan is an employee benefit or retirement arrangement that does not meet IRS requirements for favorable tax treatment. These plans often provide greater flexibility but lack tax advantages.

Old-Age, Survivors, and Disability Insurance (OASDI)

OASDI is the formal name of the U.S. Social Security system, which provides retirement benefits, survivor benefits, and disability income to eligible individuals.

Partnership

A partnership is a business structure in which two or more individuals share ownership, management responsibilities, profits, and liabilities according to an agreed-upon arrangement.

Permanent Life Insurance

Permanent life insurance refers to policies that remain in force for the insured’s lifetime as long as premiums are paid. These policies combine a death benefit with a cash value component that accumulates tax deferred. Policy costs and benefits depend on age, health, coverage amount, and insurer guarantees.

Policy Loan

A policy loan allows a life insurance policyholder to borrow against the accumulated cash value of a policy. Outstanding loans reduce death benefits and cash value, and withdrawals may be taxable and subject to penalties under certain conditions.

Policy Rider

A policy rider is an optional provision added to a life insurance policy to enhance or modify coverage, typically for an additional cost.

Policyholder

The policyholder is the individual or entity that owns an insurance policy and is entitled to exercise contractual rights.

Portfolio

A portfolio is the complete collection of investments owned by an individual or managed by an institution, often diversified across asset classes.

Power of Attorney

A power of attorney is a legal document authorizing one person to act on behalf of another in financial, legal, or medical matters if incapacitation occurs.

Preferred Stock

Preferred stock represents ownership in a corporation with priority over common stock in dividend payments and asset claims, but typically with limited voting rights.

Prenuptial Agreement

A prenuptial agreement is a legal contract entered into before marriage that defines how assets and financial responsibilities will be handled in the event of divorce.

Price/Earnings Ratio (P/E Ratio)

The price/earnings (P/E) ratio measures a stock’s valuation by comparing its current price to earnings per share, helping investors assess relative value.

Prime Interest Rate

The prime interest rate is the rate banks charge their most creditworthy customers and is influenced by the federal funds rate.

Principal

Principal refers to the original amount invested, borrowed, or owed, excluding interest or earnings.

Probate

Probate is the court-supervised legal process through which a deceased individual’s debts are settled and remaining assets distributed to heirs.

Property

Property encompasses any asset over which legal ownership exists, including real estate and personal property.

Profit-Sharing Plan

A profit-sharing plan is a defined contribution retirement plan in which employer contributions are based on company profitability. Funds accumulate on a tax-deferred basis.

Prospectus

A prospectus is a formal legal document required by regulatory authorities that provides detailed information about an investment offering. It outlines the investment’s objectives, strategies, risks, fees, and financial data, enabling investors to make informed decisions. Prospectuses are filed with and regulated by the Securities and Exchange Commission (SEC).

Qualified Retirement Plan

A qualified retirement plan operates in compliance with Section 401(a) of the Internal Revenue Code, granting it favorable tax treatment. These plans must meet strict participation, vesting, funding, and disclosure requirements.

Rate of Return

The rate of return measures the performance of an investment by comparing gains or losses to the initial cost. It accounts for income received, such as dividends or interest, as well as capital appreciation or depreciation.

Real Estate Investment Trust (REIT)

A Real Estate Investment Trust (REIT) is an investment vehicle that owns or finances income-producing real estate. REITs trade on major exchanges like stocks and provide investors with access to real estate markets without direct ownership. Returns and share values fluctuate with market conditions.

Redemption

Redemption refers to the repayment of principal to an investor upon maturity or cancellation of a security, such as a bond or preferred stock. In mutual funds, redemption describes the sale of shares back to the fund.

Required Minimum Distribution (RMD)

A Required Minimum Distribution (RMD) is the minimum amount that must be withdrawn annually from qualified retirement accounts, beginning April 1 following the year the account holder reaches age 73. Failure to take RMDs may result in significant tax penalties.

Revenue

Revenue represents the total income a company generates from its normal business activities before expenses, interest, or taxes are deducted.

Revocable Trust

A revocable trust is a trust arrangement that can be modified or terminated by the grantor during their lifetime. Income generated by the trust is typically taxed to the grantor, and assets pass to beneficiaries upon death according to trust terms.

Risk

Risk is the possibility that an investment may lose value or fail to achieve expected returns due to market conditions, issuer performance, or other factors.

Risk Tolerance

Risk tolerance reflects an investor’s capacity and willingness to endure investment losses in pursuit of potential returns. It is influenced by financial circumstances, time horizon, and psychological comfort with volatility.

Rollover

A rollover is a tax-free transfer of assets from one qualified retirement plan or account to another, provided IRS rules regarding timing and execution are followed.

Roth IRA

A Roth IRA is a qualified retirement account in which contributions are made with after-tax dollars. Earnings grow tax deferred, and qualified distributions are tax free. Roth IRAs are subject to income and contribution limits but do not require lifetime minimum distributions for the original owner.

Roth IRA Conversion

A Roth IRA conversion involves transferring assets from a traditional, SEP, or SIMPLE IRA into a Roth IRA. Converted amounts may be taxable, and conversions must meet regulatory requirements.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a federal regulatory agency responsible for protecting investors, maintaining orderly markets, and facilitating capital formation through oversight of securities markets.

Self-Directed IRA

A self-directed IRA allows account holders greater control over investment choices, subject to IRS rules. Permissible investments may include real estate and private assets, depending on custodian limitations.

Share

A share represents a unit of ownership in a corporation or investment vehicle, entitling the holder to a proportionate claim on earnings and assets.

Savings Incentive Match Plan for Employees (SIMPLE)

A SIMPLE plan is a qualified retirement plan designed for small businesses with 100 or fewer employees. It allows both employer and employee contributions and is structured around individual IRAs.

Split-Dollar Plan

A split-dollar plan is an arrangement in which an employer and employee share the costs and benefits of a life insurance policy according to agreed-upon terms.

Split-Dollar Life Insurance

Split-dollar life insurance divides policy premiums, cash values, and death benefits between two parties—typically a corporation and a key employee. These arrangements involve complex tax and legal considerations and depend on insurer guarantees.

Spousal IRA

A spousal IRA allows a working spouse to fund an IRA on behalf of a non-working spouse, subject to combined contribution limits and IRS rules.

Standard & Poor’s 500 Index (S&P 500)

The S&P 500 tracks 500 leading U.S. companies and is widely used as a benchmark for overall market performance. Investors cannot invest directly in the index.

Stock

Stock represents an equity ownership interest in a corporation, granting shareholders potential dividends, capital appreciation, and voting rights. Stock values fluctuate with market conditions.

Stock Certificate

A stock certificate is a legal document evidencing ownership of shares, though most modern ownership records are maintained electronically.

Stock Purchase Plan

A stock purchase plan allows employees to buy company shares, often at a discounted price, typically through payroll deductions.

Stock Split

A stock split increases the number of outstanding shares while proportionally reducing the price per share, leaving total market value unchanged.

Tax Credit

A tax credit directly reduces the amount of tax owed after liability has been calculated.

Tax Deduction

A tax deduction reduces taxable income and may be claimed using standard or itemized methods.

Tax Deferred

Tax-deferred status allows earnings to accumulate without current taxation until funds are withdrawn.

Tax-Exempt Bonds

Tax-exempt bonds generate income exempt from federal income taxes and sometimes state taxes, though they carry market and credit risks and may be subject to AMT.

Taxable Income

Taxable income is calculated by subtracting allowable deductions and adjustments from gross income and is used to determine tax liability.

Technical Analysis

Technical analysis evaluates securities by analyzing price movements, trends, and trading patterns to forecast future behavior.

Tenancy in Common

Tenancy in common allows multiple owners to hold property with divisible interests that pass to heirs rather than surviving owners.

Term Insurance

Term life insurance provides coverage for a specified period and pays benefits only if death occurs during the term. It does not accumulate cash value.

Testamentary Trust

A testamentary trust is created through a will and becomes effective upon the trustor’s death. These trusts are governed by complex estate and tax laws.

Time Horizon

Time horizon refers to the length of time an investor expects to hold an investment before needing access to the funds.

Title

A title is a legal document establishing ownership of property or assets.

Total Return

Total return includes all income and capital gains generated by an investment over a specified period.

Treasuries

U.S. Treasuries are government-issued debt securities backed by the full faith and credit of the United States, offering varying maturities and interest structures.

Trust

A trust is a legal entity that holds and manages assets for beneficiaries under terms established by the grantor. Trusts involve complex legal and tax considerations.

Trustee

A trustee is the individual or institution responsible for managing trust assets in accordance with fiduciary obligations.

Trustee-to-Trustee Transfer

A trustee-to-trustee transfer moves retirement assets directly between custodians without triggering taxes or penalties.

Uniform Gift to Minors Act (UGMA)

UGMA allows assets to be held for a minor under a custodian’s control until the child reaches legal maturity.

Universal Life Insurance

Universal life insurance is a form of permanent life insurance offering flexible premiums, adjustable death benefits, and tax-deferred cash value growth.

Unlimited Marital Deduction

The unlimited marital deduction permits unlimited asset transfers between spouses without gift or estate taxes.

Variable Interest Rate

A variable interest rate fluctuates based on an underlying index or benchmark, causing borrowing costs to rise or fall over time.

Variable Universal Life Insurance

Variable universal life insurance combines flexible premiums with investment subaccounts, allowing policyholders to allocate cash value while assuming investment risk.

Volatility

Volatility measures the degree of variation in an asset’s price over time. Higher volatility implies greater uncertainty and potential price swings.

Will

A will is a legal document specifying how assets should be distributed after death and naming guardians for minor children.

Withholding

Withholding is the process by which employers deduct taxes from employee wages and remit them to tax authorities.

Yield

Yield measures investment income relative to cost, focusing on income rather than capital appreciation.

Zero-Coupon Bond

A zero-coupon bond is issued at a discount and pays no periodic interest. The investor receives the full face value at maturity. Bond prices fluctuate with interest rates, and early sale may result in gain or loss.