An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.
Defined Benefit Plan
A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to
the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed for inflation.
Defined Contribution Plan
A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee’s compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee’s account.
Investing in different companies, industries, or asset classes. Diversification may also mean the participation of a large corporation in a wide range of business activities.
A pro rata portion of earnings distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.
Dollar Cost Averaging
A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when it rises, and the average cost per share is lower than the average price per share. This strategy does not protect against loss in declining markets and involves continuous investments, regardless of fluctuating price levels.
See COVERDELL ESA
Employer-Sponsored Retirement Plan
A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.
The value of a person’s ownership in real property or securities; the market value of a property or business, less all claims and liens upon it.
The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately funded and provide for vesting, survivor’s rights, and disclosures.
ESOP (employee stock ownership plan)
A defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.
Activities coordinated to provide for the orderly and cost-effective distribution of an
individual’s assets at the time of his or her death. Estate conservation often includes
wills and trusts.
Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to others (with limitations).
Executive Bonus Plan
The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive.
A person named by the probate courts or the will to carry out the directions and requests of the decedent.
Fixed income securities – Income from investments such as CDs, Social Security income benefits, pension benefits, some annuities, or most bonds that is the same every month.
A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are
excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as
ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59 ½.
A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan,
and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59 ½.
Savings plan designed to fund higher education expenses.
An approach to the stock market in which specific factors – such as the price-to-earnings ratio, yield, or return on equity – are used to determine what stock may be favorable for investment.
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. The first $12,000 a year from a donor to each recipient is exempt from tax. Most states also impose a gift tax. The gift tax exemption is indexed annually for inflation.
Health Savings Account (HSA)
An account created for individuals with high deductible health coverage in order to save for medical expenses.