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savings; taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement.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

    • Tax Credit
    • Tax Deduction
    • Tax Deferred
    • Tax-Exempt Bonds
    • Taxable Income
    • Technical Analysis
    • Tenancy in Common
    • Term Insurance
    • Testamentary Trust
    • Time Horizon
    • Title
    • Total Return
    • Treasuries
    • Trust
    • Trustee
    • Trustee-to-Trustee Transfer
    A credit subtracted from income taxes after preliminary tax liability has been calculated.
    An amount that can be subtracted from a taxpayer’s income before taxes are calculated. Taxpayers may use the standard deduction or may itemize deductions if allowable itemized deductions exceed the standard deduction.
    A condition of certain plans and accounts under which the funds in the plan or account along with any accrued interest, dividends, or other capital gains, are not subject to taxes until the funds are withdrawn.
    Debt securities issued by a state, county, city, or other political entity (such as a school district) that generate income which is exempt from federal income taxes. Income from such bonds may also be exempt from state income taxes in the state in which the bond is issued. However, some tax-exempt bonds may be subject to the federal alternative minimum tax. Bond prices rise and fall daily. Municipal bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions, and default risk. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.
    A taxpayer’s gross income, minus any adjustments, itemized deductions or the standard deduction, and personal exemptions. Taxable income is used to compute tax liability.
    A method of evaluating securities by examining recent price movements and trends in an attempt to identify patterns that can suggest future activity. Generally, technical analysis is the opposite of fundamental analysis.
    A form of property ownership under which two or more people have an undivided interest in the property and in which the interest of a deceased owner passes to his or her beneficiaries rather than to the surviving owners.
    Life insurance that provides coverage for a specific period. If the policyholder dies during that time, his or her beneficiaries receive the benefit from the policy. If the policyholder outlives the term of the policy, it is no longer in effect. 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.
    A trust created by a will or trust that is established on the death of the trustor. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
    The amount of time an investor plans to hold an investment or portfolio of investments.
    A legal document that serves as evidence of ownership of an asset or security.
    The total of all earnings from an investment or portfolio, including both capital appreciation and any income received.
    Debt securities issued by the United States government. Treasury bills normally have maturities of less than one year, while Treasury notes have maturities between one and 10 years, and Treasury bonds have maturities between 10 and 30 years. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury security prior to maturity, it could be worth more or less than the original price paid.
    A trust is a legal arrangement that creates a separate entity which can own property and is managed for the benefit of a beneficiary. A living trust is created while its grantor is still alive. A testamentary trust is created upon the grantor’s death—usually by another trust or by a will. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
    An individual, corporation, or other entity that manages property held in a trust.
    A means for transferring assets from one qualified retirement program to another without triggering a taxable event.