Glossary

1035 Exchange

A method of exchanging insurance-related assets without triggering a taxable event. Cash-value life insurance policies and annuity contracts are two products that may qualify for a 1035 exchange.

401(k) Plan

A qualified retirement plan available to eligible employees of companies. 401(k) plans allow eligible employees to defer taxation on a specific percentage of their income that is to be put toward retirement savings; taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement. Employers may match part or all of an employee’s contributions. Employees may be responsible for investment selections and enjoy the direct tax savings.

401(k) Loan

A loan taken from the assets within a 401(k) account. 401(k) loans charge interest and are normally paid back through payroll deductions. If the borrower leaves an employer before a 401(k) loan has been repaid, the full amount of the loan is generally due. If the borrower fails to repay the loan, it is considered a distribution, and ordinary income taxes may be due, along with any applicable tax penalties.

403(b) Plan

A 403(b) plan is similar to a 401(k). A 403(b) is a qualified retirement plan available to employees of non-profit and government organizations.

    • Rate of Return
    • Real Estate Investment Trust (REIT)
    • Redemption
    • Required Minimum Distribution (RMD)
    • Revenue
    • Revocable Trust
    • Risk
    • Risk Tolerance
    • Rollover
    • Roth IRA
    • Roth IRA Conversion
    A measure of the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment’s initial cost. Rates of return usually account for any income received from the investment in addition to any realized capital gains.
    A pooled investment that invests primarily in real estate. REITs trade like stocks on the major exchanges. Keep in mind that the return and principal value of REIT prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
    The return of an investor’s principal in a debt security—such as a preferred stock or bond—upon maturity or cancellation by the entity that originally issued the security. Redemption can also refer to the sale of units in a mutual fund.
    The amount which must be withdrawn annually from a qualified retirement plan beginning April 1 of the year following the year in which the account holder reaches age 70½.
    The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.
    A trust that can be altered or canceled by its grantor. During the life of the trust, any income earned is distributed to the grantor; upon the grantor’s death, the contents of the trust are transferred to its beneficiaries according to the terms of the trust.
    The chance an investment will be lost or will provide less-than-expected returns.
    A measurement of an investor’s willingness or ability to handle investment losses.
    A tax-free transfer of assets from one qualified retirement program to another. Rollovers must be made in accordance with specific requirements to avoid a taxable event.
    A qualified retirement plan in which earnings grow tax deferred and distributions are tax free. Contributions to a Roth IRA are generally not deductible for tax purposes, and there are income and contribution limits. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
    The process of transferring assets from a traditional, SEP, or SIMPLE IRA to a Roth IRA. Roth IRA conversions are subject to specific requirements and may be taxable.