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savings; taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement.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.

    • Securities and Exchange Commission (SEC)
    • Self-Directed IRA
    • Share
    • Savings Incentive Match Plan for Employees (SIMPLE)
    • Split-Dollar Plan
    • Split-Dollar Life Insurance
    • Spousal IRA
    • Standard & Poor’s 500 Index (S&P 500)
    • Stock
    • Stock Certificate
    • Stock Purchase Plan
    • Stock Split
    A federal agency with a mandate to protect investors; to maintain fair, orderly, and efficient markets; and to facilitate capital formation. The SEC acts as one of the primary regulatory agencies for the investment industry.
    An individual retirement arrangement in which the account holder can direct the investment of funds, subject to certain conditions and limits.
    A unit of ownership in a corporation or financial asset.
    A qualified retirement plan that allows employees and employers to contribute to traditional IRAs set up for employees. SIMPLE plans are available to small businesses—those with 100 or fewer employees—that do not currently offer another retirement plan.
    An arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.
    An arrangement under which a life insurance policy’s premium, cash values, and death benefit are split between two parties—usually a corporation and a key employee or executive. Under such an arrangement an employer may own the policy and pay the premiums and give a key employee or executive the right to name the recipient of the death benefit. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
    An individual retirement arrangement under which an IRA is established for a non-working spouse and is funded with contributions from the working spouse. Spousal and non-spousal IRAs are subject to combined annual contribution limits and must meet certain requirements. Contributions to a traditional IRA may be fully or partially deductible, depending on your individual circumstance. Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
    An average calculated by summing the prices of 500 leading companies in leading industries of the U.S. economy and dividing the sum by a divisor which is regularly adjusted to account for stock splits, spinoffs, or similar structural changes. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
    An equity investment in a company. Stockholders own a share of the company and are entitled to any dividends and financial participation in company growth. They also have the right to vote on the company’s board of directors. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
    A legal document that certifies ownership of a specific number of shares of stock in a corporation. In many transactions, the stockholder is registered electronically, and no certificate is issued.
    A program under which an employer offers its employees the opportunity to buy stock at a favorable price, often through payroll deduction.
    A decision by a company to increase the number of shares of stock it has outstanding by issuing more shares to its current shareholders. For example, in a 2-for-1 split each shareholder would receive as many new shares as he or she owns—effectively doubling the number of shares he or she owns. The price per share adjusts to account for the split. In the example of a 2-for-1 split, each of the new shares would have a par value of half the prior price.