Glossary

401(k) Plan
403(b) Plan
457(b) Plan
Adjusted Gross Income (AGI)
Administrator
After-Tax Return
Aggressive Growth Fund
Alternative Minimum Tax
Annuity
Asset
Asset Allocation
Asset Class
Audit
Balanced Mutual Fund
Bear Market
Beneficiary
Blue Chip Stock
Bond
Book Value
Bull Market
Buy-Sell Agreement
Capital Gain or Loss
Cash Alternatives
Cash Surrender Value
Certified Financial Planner® Practitioner
Certified Public Accountant (CPA)
Charitable Lead Trust
Charitable Remainder Trust
Chartered Financial Consultant (ChFC)
Chartered Life Underwriter (CLU)
COBRA
Coinsurance or Co-Payment
Commodities
Common Stock
Community Property
Compound Interest
Consumer Price Index
Deduction
Defined Benefit Plan
Defined Contribution Plan
Diversification
Dividend
Dollar Cost Averaging
Efficient Frontier
Employer-Sponsored Retirement Plan
Equity
ERISA
ESOP (employee stock ownership plan)
Estate Planning/Conservation
Estate Tax
Exchange-Traded Fund (ETF)
Executive Bonus Plan
Executor
Federal Income Tax Bracket
Filing Status
Fixed Income
Fundamental Analysis
Gift Taxes
Holographic Will
Individual Retirement Account (IRA)
Inflation
Intestate
Investment Category
Insurance (goto)
Irrevocable Trust
Joint and Survivor Annuity
Joint Tenancy
Jointly Held Property
Liability
Limited Partnership
Liquidity
Living Trust
Lump-Sum Distribution
Marginal Tax Rate
Marital Deduction
Modern Portfolio Theory (MPT)
Money Market Fund
Municipal Bond
Municipal Bond Fund
Mutual Fund
Net Asset Value
Pooled Income Fund
Portfolio
Preferred Stock
Prenuptial Agreement
Price/Earnings Ratio (P/E Ratio)
Principal
Probate
Profit-Sharing Plan
Prospectus
Qualified Domestic Relations Order (QDRO)
Qualified Retirement Plan
Required Minimum Distribution (RMD)
Rebalancing
Recharacterizations
Retirement Plans
Revocable Trust
Risk
Risk-Averse
Rollover
Roth IRA
Security
Self-Employed Retirement Plans
Simplified Employee Pension Plan (SEP)
Single-Life Annuity
Split-Dollar Plan
Spousal IRA
Tax Credit
Tax Deferred
Tax-Exempt Bonds
Taxable Income
Technical Analysis
Tenancy in Common
Term Insurance
Testamentary Trust
Testator
Total Return
Trust
Trustee
Trustee-to-Trustee Transfer
Universal Life Insurance
Variable Universal Life Insurance
Volatility
Welfare Benefit Plan
Whole Life Insurance
Will
Yield
Zero-Coupon Bond


§72(t) Substantially Equal Distribution (todo)


401(k) Plan
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 59½.


403(b) Plan
403(b) plans, also known as tax sheltered annuity plans (TSAs), are the retirement savings plans for educators and employees of tax-exempt organizations. Similar to 401(k) plans, employees may make salary deferral contributions, and employers may (or may not) provide a matching contribution. Investment choices generally include: 1) annuity and variable annuity contracts provided by an insurance company; 2) custodial accounts invested in mutual funds; or 3) for churches only, retirement income accounts. 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 59½.


457(b) Plan
A 457(b) plan, created in 1978, is a non-qualified tax-deferred compensation plan that works very much like other retirement plans such as the 403(b) and 401(k). There are two main types of 457 plans exist: governmental and tax-exempt 457(b) plans.


Adjusted Gross Income (AGI)
An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.


Administrator
A person appointed by the court to settle an estate when there is no will.


After-Tax Return
The return from an investment after the effects of taxes have been taken into account.


Aggressive Growth Fund
A mutual fund whose primary investment objective is substantial capital gains. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve higher returns also involve a higher degree of risk. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Alternative investments, use by advisers:  (to be updated)

  1. Commodities
  2. Real estate Investment Partnerships (REITs)
  3. Venture capital; Private equity funds
  4. Hedge funds
  5. Structured products/ notes
  6. Futures
  7. Options
  8. Currencies
  9. Limited partnerships

source: investmentnews.com, September 2011


Alternative Minimum Tax
A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.


Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Annuity contracts are usually purchased from banks, credit unions, brokerage firms, or insurance companies. Any guarantees are contingent on the claims-paying ability of the issuing company.


Asset
Anything owned that has monetary value.


Asset Allocation
The process of repositioning assets in a portfolio to maximize potential return for a particular level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models. Asset allocation does not guarantee against loss; it is a method used to help manage investment risk.


Asset Class
A category of investments with similar characteristics.


Audit
The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records’ accuracy, consistency, and conformity to legal and accounting principles.


Balanced Mutual Fund
A mutual fund whose objective is a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


Bear Market
When the stock market appears to be declining overall, it is said to be a bear market.


Beneficiary
A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, and so on.


Blue Chip Stock
The common stock of a company with a long history of profitability and consistent dividend payments.


Bond
A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000.


Book Value
The net value of a company’s assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock’s market value.


Bull Market
When the stock market appears to be advancing overall, it is said to be a bull market.


Buy-Sell Agreement
A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.


Capital Gain or Loss
The difference between the sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.


Cash Alternatives
Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares, that can be readily converted into cash.


Cash Surrender Value
The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Policy loans that are not repaid will reduce the policy’s death benefit and cash value by the amount of any outstanding loan balance plus interest.


CERTIFIED FINANCIAL PLANNER® Practitioner
A credential granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. CFP®, CERTIFIED FINANCIAL PLANNER® and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification.


Certified Public Accountant (CPA)
A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination (administered by the American Institute of Certified Public Accountants) and has fulfilled that state’s educational and professional experience requirements for certification.


Charitable Lead Trust
A trust established for the benefit of a charitable organization. A grantor who places money, securities, property, and other assets in a charitable remainder trust can designate an income beneficiary, even if it is the grantor herself, to receive payment of a specified amount (at least annually) from the trust. You may also qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.


Charitable Remainder Trust
A trust established for the benefit of a charitable organization. A grantor who places money, securities, property, and other assets in a charitable remainder trust can designate an income beneficiary, even if it is the grantor herself, to receive payment of a specified amount (at least annually) from the trust. You may also qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.


Chartered Financial Consultant (ChFC)
A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.


Chartered Life Underwriter (CLU)
A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners and professionals.


COBRA
The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for 18 months at the employee’s expense. Coverage may be extended to the employee’s dependents for 36 months in the case of divorce or death of the employee.


Coinsurance or Co-Payment
The amount an insured person must pay for a covered medical and/or dental expense if his or her insurance doesn’t provide 100 percent coverage.


Commodities
The generic term for goods such as grains, foodstuffs, livestock, oils, and metals which are traded on national exchanges. These exchanges deal in both “spot” trading (for current delivery) and “futures” trading (for delivery in future months).


Common Stock
A unit of ownership in a corporation. Common stockholders participate in the corporation’s profits or losses by receiving dividends and by capital gains or losses in the stock’s share price.


Community Property
State laws vary, but generally all property acquired during a marriage — excluding property one spouse receives from a will, inheritance, or gift — is considered community property, and each partner is entitled to one half. This includes debt accumulated. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.


Compound Interest
Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.


Consumer Price Index
The U.S. Department of Labor’s main indicator of inflation. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.


Deduction
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 to 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.


Diversification
Investing in different companies, industries, or asset classes in an attempt to limit overall risk. Of course, diversification does not guarantee against loss; it is a method used to help manage investment risk. Diversification may also mean the participation of a large corporation in a wide range of business activities.


Dividend
A pro rata portion of earnings usually 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.

“Over the past 100 years, 40% of stocks’ total return has been from dividends.” source: http://www.marketwatch.com/story/stock-dividends-provide-a-big-part-of-your-total-return

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 the price rises, and the average cost per share is lower than the average price per share. Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals.


Efficient Frontier
A statistical result from the analysis of the risk and return for a given set of assets that indicates the balance of assets that may, under certain assumptions, achieve the best return for a given level of risk.


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.


Equity
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 against it.


ERISA
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.


Estate Planning/Conservation
Activities coordinated to provide for the orderly and cost-effective distribution of an individual’s assets at the time of his or her death.  Activities include:

  1. A will governs assets that pass through probate. Wills help to ensure that property is passed according to an individual’s wishes.
  1. Beneficiary Designations. A number of assets pass outside the probate process:  2.1 Home jointly owned with spouse, passed with right of survivorship, the house will go directly to the surviving spouse;  2.2 Retirement accounts (e.g. 401(k)) will pass directly to the named beneficiaries (should not be a trust or an estate);  2.3 Life insurance and any assets left in a trust will pass directly to the named beneficiaries.
  1. Living will specifies your wishes concerning life-prolonging medical procedures;
  1. Health-care power of attorney names somebody to make important healthcare decisions on your behalf in the event of incapacity.
  1. Durable power of attorney appoints somebody to make financial decisions for you should you become incapacitated. This document can give your agent the power to transact real estate, enter into financial transactions and make other legal decisions literally as if he or she was you. This type of POA is revocable by the principal at a time of his or her choosing, typically a time when the principal is deemed to be physically able, deemed mentally competent or upon death.
  1. Guardianship Designations. Many wills or trusts incorporate this clause. If you have kids or are considering having children, picking a guardian is incredibly important and sometimes overlooked. Make sure the individual or couple you choose shares your views, is financially sound and is genuinely willing to raise children. As with all designations, a backup or contingent individual/family should be named as well.
  1. Letter of Intent is simply a document left by you to your executor or to a beneficiary. The purpose is to define what you want done with a particular asset after your death or incapacitation. In addition, some letters of intent also provide for the details of the funeral or other special requests. While such a document may not necessarily be valid in the eyes of the law, it helps inform a probate judge of your intentions and may help in the distribution of your assets if the will is deemed invalid for some reason.


Estate Tax
Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to heirs. The 2001 Tax Act provided increased estate and generation-skipping tax exemptions and lower marginal rates, phased-in through 2009. The law phased out estate and generation-skipping taxes altogether for 2010 – substituting new “carryover basis” rules for 2010. Under the 2001 Tax Act the estate and generation-skipping taxes were scheduled to come back in 2011 at 2001 levels (lower exemption amounts and higher tax rates). The 2010 Tax Act provides significant estate and generation-skipping tax relief for two years.

Rates and Exemptions:

  • Single, 2011-12: $5 million
  • Couples, 2011-12: $10 million
  • The top federal estate tax rate is 35%


Exchange-Traded Fund – ETF
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

Advantages of investing in ETFs include: (1) you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share and (2) the expense ratios for most ETFs are lower than those of the average mutual fund.

Major ETFs include:  SPY, DIA, QQQ, IWM, GLD, SLV which tracks the S&P500, DJIA, NASDAQ, Russell, gold, and silver respectively.


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.


Executor
A person named by the probate courts or the will to carry out the directions and requests of the decedent.


Federal Income Tax Bracket
The range of taxable income that is taxable at a certain rate. Currently, there are six federal income tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.


Filing Status
There are 5 filing statuses:

  • Single
  • Married filing jointly
  • Married filing separately
  • Qualifying widow(er)
  • Head of household


Fixed Income
Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, that is the same every month.


Fundamental Analysis
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.


Gift Taxes
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor.Currently, the first $13,000 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 for inflation.


Holographic Will
A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.


Individual Retirement Account (IRA)
Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.


Inflation
An increase in the price of products and services over time. The government’s main measure of inflation is the Consumer Price Index.


Intestate
A person who dies without leaving a valid will. State law then determines who inherits the property or serves as guardian for any minor children.


Investment Category
A broad class of assets with similar characteristics. The five investment categories include cash alternatives, fixed principal, equity, debt, and tangibles.


Irrevocable Trust
A trust that may not be modified or terminated by the trustor after its creation.


Joint and Survivor Annuity
Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.


Joint Tenancy
Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent’s interest.


Jointly Held Property
Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.

Kiddie tax (todo)


Legal Documents
LLC, C Corp, S Corp, Will, Trust, Will, POA, more.  (open)


Liability
Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.


Limited Partnership
Limited partnerships pool the money of investors to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it passes the income on to its investors as dividend payments. Limited Partnerships are subject to special risks such as illiquidity and those risks inherent in the underlying investments. There are no assurances that the stated investment objectives will be reached. At redemption, the investor may receive back less than the original investment. Individuals must meet specific suitability standards. These standards, along with the risks and other information concerning the partnership, are set forth in the prospectus, which can be obtained from your financial professional. Please consider the investment objectives, risks, charges, and expenses carefully before investing. Be sure to read the prospectus carefully before deciding whether to invest.


Liquidity
How quickly and easily an asset or security can be converted into cash.


Living Trust
A trust created by a person during his or her lifetime.


Lump-Sum Distribution
The disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.


Marginal Tax Rate
The amount of tax paid on an additional dollar of income. As income rises, so does the tax rate.


Marital Deduction
A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the “unlimited marital deduction.” The marital deduction may not apply in the case of noncitizens.


Modern Portfolio Theory (MPT)
In 1952 Dr. Harry Markowitz introduced the concept of Modern Portfolio Theory.  Prior to MPT, most portfolios were constructed based purely on risk and return data. With MPT, Markowitz introduced the concept of including the correlation of returns of available investment options as a factor in constructing investment portfolios. By factoring in the correlation of returns, an investor can combine investments that behave differently in various market conditions, which theoretically reduces the overall volatility of the investment portfolio.  Both the Department of Labor and the courts subscribe to the principles of modern portfolio theory as the applicable standard for assessing the prudence of actions taken by retirement plan fiduciaries.


Money Market Fund
A mutual fund that specializes in investing in short-term securities and tries to maintain a constant net asset value of $1. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money when investing in a money market fund.


Municipal Bond
A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Some municipal bond interest could be subject to the federal alternative minimum tax. If you sell a municipal bond at a profit, you could incur capital gains taxes. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.


Municipal Bond Fund
A mutual fund that specializes in investing in municipal bonds. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance. The principal value of bond funds fluctuates with changes in market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


Mutual Fund
A collection of stocks, bonds, or other securities purchased and managed by an investment company with funds from a group of investors. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares when sold, or redeemed, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


Net Asset Value
The per-share value of a mutual fund’s current holdings. The net asset value is calculated by dividing the net market value of the fund’s assets by the number of outstanding shares.


Pooled Income Fund
A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes.


Portfolio
All the investments held by an individual or a mutual fund.


Preferred Stock
A class of stock with claim to a company’s earnings, before payment can be made on the common stock, and that is usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.


Prenuptial Agreement
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.


Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the company’s annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.


Principal
In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.


Probate
The court-supervised process in which a decedent’s estate is settled and distributed.


Profit-Sharing Plan
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees’ accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.


Prospectus
A document provided by investment companies to prospective investors. The prospectus gives information needed by investors to make informed decisions prior to investing in a specific mutual fund, variable annuity, or variable universal life insurance. The prospectus includes information on the minimum investment amount, the investment company’s objectives, past performance, risk level, sales charges, management fees, and any other expense information about the investment company, as well as a description of the services provided to investors in the investment company.


Qualified Domestic Relations Order (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee’s ERISA retirement plan accrued benefits be divided between the employee and the spouse.


Qualified Retirement Plan
A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.

Required Minimum Distribution (RMD)
Required Minimum Distribution (RMD). The minimum distribution rules that apply to traditional IRAs don’t apply to Roth IRAs other than those that are inherited (see Stretch IRA) from someone other than a spouse. This is a big advantage for people who don’t need to draw down their IRAs as fast as those rules would require. The longer you can keep your money in an IRA, the better. The minimum distribution rules do apply to Roth accounts in 401k or 403b plans, but this is not a significant problem. When you retire, you can roll your Roth 401k or 403b account into a Roth IRA where the minimum distribution rules won’t apply.

Rebalancing
The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation. For example, say your original target asset allocation was 75% stocks and 25% bonds. If your stocks performed well during the quarter, it could have increased the stock weighting of your portfolio to 85%. You may then rebalance your portfolio by selling some of your stocks and buy bonds to get it back to your original target allocation of 75/25.

Recharacterizations
If you contribute to a Roth IRA, you can change your mind later about the type of IRA that received the contribution. This is called a recharacterization. The main purpose of this rule is to help people who learn after contributing to a Roth that their income is too high to permit that contribution. Yet a recharacterization can be used for other purposes. For example, you may simply find that the deduction you would get from contributing to a traditional IRA is more valuable than you anticipated, and choose to recharacterize the contribution for that reason.

Retirement Plans
(writeup to be expanded)

  • §401(k); Roth 401(k)
  • Solo §401(k); Solo Roth 401(k)
  • §403(b); Roth 403(k)
  • §457; Roth 457
  • Traditional IRAs; Roth IRA
  • SIMPLE IRA
  • SEP


Revocable Trust
A trust in which the creator reserves the right to modify or terminate the trust.


Risk
The chance that an investor will lose all or part of an investment.


Risk-Averse
Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.


Rollover
A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.


Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.


Security
Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).


Self-Employed Retirement Plans
In the past, the terms “Keogh plan” and “H.R. 10 plan” were used to distinguish a retirement plan established by a self-employed individual from a plan established by a corporation or other entity. However, self-employed retirement plans are now generally referred to by the name of the particular type of plan used, such as SEP IRA, SIMPLE 401(k), or self-employed 401(k). The contribution amount is indexed annually for inflation.


Simplified Employee Pension Plan (SEP)
A type of plan under which the employer contributes to an employee’s IRA. Contributions may be made up to a certain limit and are immediately vested.


Single-Life Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.


Split-Dollar Plan
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.


Spousal IRA
An IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that can be made each year to an IRA and a spousal IRA currently is $10,000 or 100 percent of earned income, whichever is less, for the 2011 tax year. The total may be split between the two IRAs as the couple wishes, provided that the contribution to either IRA does not exceed the maximum annual contribution limit ($5,000 for 2011).


Stretch IRA
Stretch IRA (open)


Standards: Suitability vs. Fiduciary Standards of Care (OPEN)

  • Suitability Standard — Your financial intermediary may seek to serve your best interests, but he or she is not legally obligated to do so.
  • Fiduciary Duty — Your investment advisor is legally obligated to serve your best interests.

Current Federal Regulatory Environment: Fiduciary Duty

  • Broker/dealer. Suitability Standard — Investment advice is considered incidental to the services provided. Broker/dealers are not obligated to serve clients’ highest interests
  • Investment Advisor. Fiduciary Duty — Investment advice is considered core to the services provided. Advisors must act in clients’ highest interests.


Tax Credit
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.


Tax Deferred
Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.


Tax-Exempt Bonds
Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes. If you sell a tax-exempt bond at a profit, you could incur capital gains taxes. Some tax-exempt bond interest could be subject to the federal alternative minimum tax. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.


Taxable Income
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.


Technical Analysis
An approach to investing in stocks in which a stock’s past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock’s future performance.


Tenancy in Common
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to the designated beneficiaries and not to the surviving owner or owners.


Term Insurance
Term life insurance provides a death benefit if the insured dies. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age.


Testamentary Trust
A trust established by a will that takes effect upon death.


Testator
One who has made a will or who dies having left a will.


Trust
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include: Testamentary Trust – A trust established by a will that takes effect upon death; Living Trust – A trust created by a person during his or her lifetime; Revocable Trust – A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust – A trust that may not be modified or terminated by the trustor after its creation


Trustee
An individual or institution appointed to administer a trust for its beneficiaries.


Trustee-to-Trustee Transfer
A method of transferring retirement plan assets from one employer’s plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.


Universal Life Insurance
A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred at current interest rates, subject to change, but with a guaranteed minimum. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy.Universal life is also referred to as “flexible premium” life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy’s cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.


Variable Universal Life Insurance
A type of life insurance that combines a death benefit with an investment element that accumulates tax deferred. The account value can be allocated into a variety of investment subaccounts. The investment return and principal value of the variable subaccounts will fluctuate; thus, the policy’s account value, and possibly the death benefit, will be determined by the performance of the chosen subaccounts and is not guaranteed. Withdrawals may be subject to surrender charges and are taxable if the account owner withdraws more than his or her basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy. Any guarantees are contingent on the claims-paying ability of the issuing company. Variable universal life is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectuses, which contains this and other information about the variable universal life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


Volatility
The range of price swings of a security or market over time.


Welfare Benefit Plan
An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits.


Whole Life Insurance
A type of life insurance that offers a death benefit and also accumulates cash value tax deferred at fixed interest rates. Whole life insurance policies generally have a fixed annual premium that does not rise over the duration of the policy. Whole life insurance is also referred to as “ordinary” or “straight” life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy’s cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.


Will
A legal document that declares a person’s wishes concerning the disposition of property, the guardianship of his or her children, and the administration of the estate after his or her death.


Yield
Generally, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.


Zero-Coupon Bond
This type of bond makes no periodic interest payments but instead is sold at a steep discount from its face value. Because these bonds do not pay interest until maturity, their prices tend to be more volatile than bonds that pay interest regularly. Interest income is subject to ordinary income tax each year, even though the investor does not receive any income payments. Bonds sold prior to maturity may be worth more or less than their original cost.

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