Financial Glossary

This is a way of exchanging insurance-related assets without activating a taxable event. The products, cash-value life insurance policies and annuity contracts may qualify for a 1035 exchange.

This is a retirement plan available to eligible employees of companies. It lets employees defer taxation on a specific percentage of their income that will be saved as 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 Taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn normally in retirement.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 have an option to match part or all of their employees' contributions. The employees may be responsible for investment selections and enjoy the direct tax savings as a result of the plan.

This refers to a loan taken from the assets within a 401(k) account. Interest is charged on a 401(k) loan and it is usually repaid through payroll deductions. Failing to repay the loan is considered a distribution and ordinary income taxes may be due along with any applicable tax penalties.

Under the Tax Cuts and Jobs Act, you don't have to pay taxes or the penalty if you repay the loan by the due date of your tax return for the year when you leave your job - including extensions. For example, if you quit your job in 2020, you'd have time until April 15, 2021, to repay the loan.

This plan is similar to a 401(k). It is a qualified retirement plan for employees working in non-profit and government organizations.

 It is the amount held in an account at the end of a reporting period. For example, the account balance of a credit card would show the amount owed to a lender due to transactions made during a specific period.

This is a type of mortgage where the interest rate is adjusted periodically based on an index. Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages as the lender has an option to direct some of the risks to the borrower.

The interest rate on a variable mortgage may even increase if prevailing rates go higher.

It's a figure used in the calculation of income tax liability. It is calculated by subtracting allowable adjustments from gross income.

A probate-court-appointed person who is assigned the task of settling an estate that has no will.

This refers to the return on an investment after subtracting the due taxes from the sum.

This is a mutual fund that specifically pursues substantial capital gains. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less compared to the original cost. Mutual funds are sold only by prospectus.

It is recommended to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional.

A prospectus containing this and information about the investment company can be obtained from your financial professional. 

A technique of calculating income tax with a unique set of rules for deductions and exemptions which are more restrictive than those in the traditional tax system. It aims to ensure that certain high-income taxpayers don't pay a lower effective tax rate than everyone else.

Taxpayers have to fill out IRS Form 6251 to determine whether or not the AMT applies.

The annual expense of a loan is indicated in the form of a percentage of the loan amount. It includes interest owed and any fees or extra costs associated with the agreement.

A report required by the Securities and Exchange Commission (SEC) of any company issuing registered stock describing a company's management, operations, and financial reports. Annual reports are sent to shareholders, and must also be available for public review.

A contract with an insurance company guaranteeing current or future payments in exchange for a premium or series of premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. Withdrawals and income payments are taxed as ordinary income.

Penalties may apply on a withdrawal is made before 59 years of age. The guarantees of an annuity contract depend on the issuing company's claims-paying ability. These contracts have charges associated with the contract, and a surrender charge also may apply if the contract owner decides to give up the annuity before certain time-period conditions are satisfied.

A formal assessment of a property's value performed by a qualified professional at a specific point in time.

It is anything that is owned, has a current value and may provide a future benefit.

This is a method of allocating funds to get the highest potential return at a specific level of risk. It uses sophisticated mathematical analysis of the historical performance of asset classes to attempt to project future risk and return.

Asset allocation is an approach for managing investment risks. It does not guarantee against investment loss.

This is a category of investments that have similar characteristics and tend to behave similarly in the marketplace.

In accounting, it is an examination of a company's financial records carried out by a qualified professional to determine the record's accuracy, consistency, and conformity to legal standards and established accounting principles.

In taxes, it is explained as the formal examination of a tax return by the Internal Revenue Service or other authority for determining its accuracy.

This is known as an arrangement based on which an institution automatically deposits dividends or capital gains generated by an individual's investment back into the investment to purchase additional shares.

A mutual fund attempting to hold a balance of stocks and bonds. Mutual funds are subject to fluctuation in value and market risk. Shares, when redeemed, may be valued higher or lower than the original cost.

Mutual funds are sold only by prospectus. It is recommended to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this along with information about the investment company can be obtained from your financial professional.

It is a market experiencing an extended period of declining prices. A bear market is the opposite of a bull market.

A person or entity who will receive benefits from a life insurance policy, qualified retirement plan, annuity, trust, or will upon the death of an individual.

The stock of an established company that has a history of generating a profit and possibly a consistent dividend.

A debt instrument based on which the issuer promises to pay a specified amount of interest and repay the principal at maturity. A bond’s market value will vary with changes in interest rates. As rates rise, the value of existing bonds typically falls.

A bond may be worth more or less than the initial purchase price when an investor sells it before maturity. By holding a bond to maturity, an investor will receive the interest payments due along with their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

The value of a company’s assets without its liabilities preferred stock and redeemable preferred stock.

It is a market experiencing an extended period of rising prices. A bull market is the opposite of a bear market.

This is an investment strategy that advocates holding securities for the long term and without paying attention to short-term price fluctuations in the market.

A contract that provides for the purchase of all outstanding shares from a business owner, who wishes to sell, wants to terminate involvement, is permanently disabled, or has died. These agreements are often funded with life insurance.

This is the difference between the purchase price of an asset and the price at which it was sold. When the sale price is higher than the purchase price, the difference is known as a capital gain. When the sale price is lower than the purchase price, the difference is called a capital loss.

These are assets that are effortlessly converted into cash. They have a very low risk of price fluctuation. Money market funds may be considered a cash alternative. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Money market funds aim to preserve the value of your investment at $1 a share. However, it is also possible to lose money by investing in a money market fund.

This is the amount a policyholder receives when they voluntarily terminate a cash-value life insurance policy before the insured event occurs or when cashing out an annuity contract before its maturity. Computation of cash surrender value is stated in the life insurance or annuity contract.

A deposit with a bank, thrift institution, or credit union that promises a fixed interest rate on funds deposited for a specified period of time. Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor per institution and generally provide a fixed rate of return, whereas the value of money market mutual funds can fluctuate.

It is a trust established to benefit a charitable organization. Based on this trust, the charitable organization receives payment of a specified amount at least annually, from the trust. On the death of the grantor, the remainder interest in the trust passes to their heirs.

Opting for a trust involves a complex set of tax rules and regulations. Consider working with a professional who is familiar with the rules and regulations, before proceeding with a trust.

It is a trust established to benefit a charitable organization. Based on this trust, the grantor can designate an income beneficiary to receive payment of a specified amount at least annually, from the trust. The grantor can be the income beneficiary as well.

On the death of the grantor, the remainder interest in the trust passes to the charitable organization. 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.

A request for payment under the terms of an insurance policy.

This is a federal law that mandates group health plans sponsored by employers with over 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for a specified period at the employees’ expense.

A policy provision based on which the total cost of covered medical services is shared between the insurance company and the insured party once the policy’s deductible has been met.

An unsecured, short-term debt security issued by a corporation to finance short-term liabilities. These are usually backed only by the issuing corporation's promise to pay the face amount on the maturity date specified on the note, which is usually less than six months.

 A corporate equity ownership that represents partial ownership of a corporation. Holding common stock entitles one to participate in stockholder meetings, to vote for the board of directors and may even receive periodic dividends.

Based on these state laws, most property and debts acquired during a marriage, excluding gifts or inheritances are owned jointly by both spouses and are divided upon divorce or annulment. In the United States, nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

This is a process where interest is computed both on an account's principal and on any gains reinvested in prior periods. It differs from a simple interest, where interest is calculated only on the principal amount.

An index used by the U.S. government to measure inflation. It is calculated monthly by the Department of Labor.

Based on this term life insurance policy, a policyholder has the right to convert the policy to permanent life insurance, subject to limitations. The cost and availability of life insurance will depend on various factors including, including age, health, and the type and amount of insurance purchased.

Life insurance policies have expenses such as mortality and other charges. 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.

It is a debt security issued by a corporation based on which the issuer promises to make periodic interest payments and to repay the investor's principal at maturity. The market value of a bond will vary with interest rate changes. The value of existing bonds typically falls with an increase in rates.

If an investor sells a bond before reaching maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, investors will receive the interest payments due plus their original principal, except default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

It’s a legal organization created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. Corporations are taxable entities that are taxed separately from their members or shareholders. They can borrow money and make a profit separately from their members or shareholders.

This is a tax-advantaged investment account that allows funds to accumulate for covering future education expenses, subject to limitations. It allows money to grow tax-deferred and proceeds to be withdrawn tax-free for qualified education expenses at a qualified institution.

A statistical estimation suggesting the likeliness of a potential borrower to pay their debts and, thereby showing how much credit they should have.

It is an obligation owed by the debtor to the creditor.

The ratio of the total debt of a company to the company’s total shareholder equity. Some use the debt-to-equity ratio to ascertain a company’s capability to repay its creditors.

An amount that can be subtracted from gross income before calculating income taxes.

A legal document that confirms ownership of an asset or the passage of an interest, right, or ownership in the asset from one person or legal entity to another.

A contract with an insurance company that guarantees a future payment or series of payments in exchange for current premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn.

The guarantees offered by an annuity contract depend on the issuing company’s claims-paying ability. Annuities have charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

This is a type of retirement plan based on which the benefit to a retiring employee is defined. Defined benefit plans are normally funded by employer contributions.

A retirement plan under which the annual contributions made by the employer or employee are defined. The benefits may depend on the performance of the investments in the account.

A reduction in the price of goods and services leads to deflation. It is the opposite of inflation.

A person relying on someone else for their financial support. Within limits, those who support dependents are allowed to claim certain exemptions when filing income taxes.

This is known as the direct transfer of assets from the trustee or custodian of one qualified retirement plan or account to the trustee or custodian of another. Direct rollovers do not trigger taxable events if done correctly.

A policy that pays a portion of the insurers’ income when a specified disability makes it uncomfortable, painful, or impossible to continue working.

An investment strategy based on which the capital is divided between several assets or asset classes. Diversification operates under the assumption that different assets and/or asset classes are unlikely to move in the same direction, allowing gains in one investment to offset losses in another.

It is an approach to manage investment risk. It does not eliminate the risk of loss if security prices decline.

These are taxable payments made by a company to its shareholders. Some dividends are paid quarterly and others are paid monthly. Companies can adjust common share dividends at any time they want, pending approval by the company’s board of directors.

A fixed dollar amount of securities is purchased at regular intervals based on this investment strategy. Under dollar-cost averaging, more shares are purchased when prices are low and fewer shares when prices rise.

It is to be noted that dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in a rising market. Investors are recommended to evaluate their financial ability to continue making purchases through periods of declining and rising prices.

This is calculated by adding the prices of 30 actively leading stocks on the New York Stock Exchange (NYSE) and dividing the sum by a divisor which has been adjusted to account for cases of stock splits, spinoffs, or similar structural changes. One cannot invest directly in an index.

Fund withdrawals from an investment before its maturity date or withdrawal of funds from a tax-deferred account before the legally imposed age requirements have been met. Early withdrawals may be subject to penalties.

A defined-contribution plan that provides a company’s workers with an ownership interest in the company usually as shares of company stock.

An employer sponsors this retirement plan for the benefit of their employees. These typically fall into one of two types: defined-contribution plans (such as SEP IRAs, 401(k) plans and 403(b) plans) and defined-benefit plans (such as traditional pensions).

The value of a real property or a business after all liabilities have been paid. A home worth $300,000 with a $200,000 mortgage would have $100,000 in equity.

A federal law that establishes the regulations to govern retirement plans and spell out the federal income tax regulations and effects for qualified retirement plans.

Managing a person’s financial and healthcare matters during their lifetime and effectively and economically distribute the assets within that estate upon their demise.

Federal and/or state taxes that may be levied on the assets of a deceased person upon their death. These taxes are paid by the estate of the deceased rather than their heirs.

An ETF is a share of an investment company that owns a block of shares for a specific investment objective. They trade like stocks and are listed on stock exchanges and sold by broker-dealers. They are sold only by prospectus. It is recommended to consider the charges, risks, expenses, and investment objectives carefully before investing.

A prospectus containing this along with other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

An executive benefits an employer that is paid for.

A person named in a will or appointed by the probate court to distribute the deceased’s assets as directed by the will or, following the probate laws of the state in the absence of a will.

A taxpayer’s income is taxed at a certain rate within a series of income ranges which is call the federal income tax bracket. Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within the bracket range.

This is the United States central bank. The Federal Reserve System consists of 12 independent banks that operate under the supervision of a seven-member, federally appointed board of governors. The Fed strives to maintain maximum employment, stable price levels, and moderate long-term interest rates. It establishes and enforces the regulations banks, savings and loans, and credit unions must follow. It also acts as a clearing house for certain financial transactions and provides banking services to the federal government.

Loans, grants, scholarships, and work-study programs offered by federally and privately funded sources for enabling students to attend college.

A record concerning the financial activities of a business, person, or other entity. For a business, financial statements typically include a balance sheet, a profit and loss statement and a cash flow statement.

An independent regulator supervising all securities firms doing business in the U.S. FINRA aims to protect investors by ensuring the security industry operates fairly and honestly.

Joint life insurance is taken out on the lives of two or more people that pay its death benefit when the first insured person dies.

A contract with an insurance company guaranteeing investment growth at a specific interest rate along with current or future payments in exchange for a premium or series of premiums. The interest earned on the contract is not taxable until the funds are paid out or withdrawn.

The guarantees of an annuity contract vary based on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

A mortgage with a fixed interest rate that will not change over the life of the loan.

The legal process under which a creditor confiscates the property of a borrower who has failed to make timely payments on their debt.

A sales fee paid at the time when an investment is made. This fee is deducted from the investment, lowering the size of the investment.

A security evaluation method that examines financial and economic factors, including the current finances of a company and the prevailing economic environment to determine whether the company’s future value is accurately reflected in its current stock price.

These are assets transferred voluntarily where the giver receives no compensation and retains no interest in the gift.

A tax levied by the federal government and some states on the transfer of property as a gift. Gift taxes usually increase with the amount of the gift and are paid by the donor.

Total monthly income generated from all sources before taxes and other expenses are considered.

Life insurance that covers all the members of a specific group. For example, the employees of a specific company or the members of a professional association.

An account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes. Unlike Flexible Spending Accounts (FSAs), funds can be rolled over from year to year if not spent.

The real value of a home after all liabilities have been paid. Thus a home worth $300,000 with a $200,000 mortgage would have $100,000 in equity.

Money or other compensation received from any source, including, wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends. All income is usually taxable unless it is specifically exempted by law.

An average of the prices of a hypothetical basket of securities representing a particular market or portion of a market. Among the most well known are the Dow Jones Industrials Index, or the Dow, the Standard & Poors 500 Index, or the S&P 500, and the Russell 2000 Index.

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.

This is a qualified retirement account for individuals. Contributions to a Traditional IRA may be fully or partially deductible, depending on your individual circumstance.

Following the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA).

Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59, may be subject to a 10-percent federal income tax penalty. You can continue to contribute to a Traditional IRA past age 70 under the SECURE Act as long as you meet the earned-income requirement.

An upward movement in the average level of prices. Each month, the Bureau of Labor Statistics reports on the average level of prices when it releases the Consumer Price Index (CPI).

When a company goes public by offering shares of stock, the process is called an IPO. In an IPO, investment banks buy company shares and then offer them to the public at an offering price. The market price may be more or less than the offering price as the stock is traded. 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.

The expenditure to borrow money is denoted as a percentage of the loan amount over one year.

The condition of an estate when its owner dies without leaving a valid will. In such circumstances, state law normally determines who inherits property and who serves as guardian for any minor children.

The stated financial goal of an investment.

It is a trust that cannot be altered, stopped, or canceled after its creation without the permission of the beneficiary or trustee. Using a trust involves a complex set of tax rules and regulations. Before proceeding with a trust, consider working with a professional who is familiar with the rules and regulations.

It is a form of property ownership where two or more individuals have an undivided interest in the property and the survivor or survivors automatically assume ownership of the interest of any joint tenant who dies.

Property owned simultaneously by multiple individuals. All co-owners have an equal right to use the property, and no co-owner can exclude another co-owner from the property. Some of the most common forms of jointly-held property are joint tenancy, tenancy in common, and, in some states, community property.

It is a tax-deferred retirement plan for self-employed individuals and employees of unincorporated businesses. These plans are identical to IRAs but have significantly higher contribution limits.

Distributions from Keogh plans and most other employer-sponsored retirement plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken before age 59. Generally, once you reach age 70, you must begin taking the required minimum distributions.

An employee who has valuable skills, knowledge, or organizational abilities, who is considered critical to the success of a given company.

Company-owned insurance designed to cover the cost of replacing a key employee if he or she were to die or become disabled.

It’s a contract based on which an insurance company promises, in exchange for premiums, to pay a set benefit when the policyholder dies.

The cost and availability of life insurance depend on various factors such as including age, health and the type and amount of insurance purchased. Life insurance policies have expenses such as mortality and other charges.

Upon surrendering the policy prematurely, the policyholder also may have to pay surrender charges and face income tax implications. It is recommended to determine 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.

The ease and speed with which an asset or security can be bought or sold.

It is a trust created by a person that allows him or her to control the assets he or she contributes to the trust during his or her lifetime. It also lets them direct their disposition upon their death.

A living will is a written document that allows the originator to designate someone to make medical decisions on their behalf if they become incapacitated due to an accident or illness.

A type of insurance that covers the cost of medical and non-medical services needed by those who have a chronic illness or disability, most commonly associated with aging. Long-term-care insurance can cover the cost of nursing home care, in-home assistance, assisted living, and adult daycare.

 It is a one-time payment of the entire amount present in an employer-sponsored retirement, pension plan, annuity, or similar account, instead of handing out the payments in smaller installments.

It is the expenditure of having assets professionally managed. This fee is normally a fixed percentage of the fund's asset value. The terms of the fee are disclosed in the prospectus.

It is a provision of the tax code that allows a person to transfer an unlimited amount of assets to their spouse at any time including upon the individual's death without triggering a tax liability.

This term refers to the risk that an entire market will decline, reducing the value of the investments in it without regard to other factors. This is also known as Systemic Risk.

It is an investment philosophy based on which investors buy and sell securities in an attempt to profit from short-term price fluctuations.

It is the date on which debt security is due for payment and on which an investor’s principal is due to be repaid.

This is a health program offered by the federal government to eligible individuals and families with low income and resources. It is means tested, meaning those who apply for benefits must demonstrate they have the need.

This is the federal government’s health program for individuals aged 65 and over and for individuals who have certain disabilities or end-stage renal disease.

It is a mutual fund that invests in assets that are easily converted into cash and have a low risk of price fluctuation. It may include obligations such as money market holdings, Treasury bills, and commercial paper.

Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds aim to maintain the value of your investment at $1 per share. However, it is possible to lose money by investing in a money market fund.

Issued by a state, county, city, or other political entity such as a school district, this debt security is used to raise public funds for special projects. The income generated from municipal bonds is usually exempted from federal income taxes. 

It may also be exempted from state income taxes in the state in which the municipal bond is issued. Bond prices vary daily. Municipal bonds are subject to a variety of risks such as adjustments in interest rates, call risk, market conditions, and default risk.

Some municipal bonds may be subject to the federal alternative minimum tax. With a rise in interest rates, bond prices usually fall. Certain municipal bonds may not sell very easily. Someone who issues bonds may fail to make interest or principal payments, which may lead to the issuer defaulting on the bond. In that case, the municipal bond may have an insignificant value.

If a bond is purchased at a premium, it may result in realized losses. The interest on a municipal bond may be determined to be taxable after purchase.

Offered by an investment company, this mutual fund specifically invests in municipal bonds. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus.

Individuals are recommended to consider the charges, risks, expenses, and investment objectives carefully before proceeding with the investment. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before making the investment.

A mutual fund is a pooled investment account offered by an investment company. Mutual funds pool the monies of many investors and then invest the money to pursue the fund's stated objectives. The investment company handles the resulting portfolio of investments.

Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are recommended to consider the charges, risks, expenses, and investment objectives carefully before investing.

A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest.

This is an American stock exchange originally founded by the National Association of Securities Dealers. It was the world’s first electronic stock market when the NASDAQ stock exchange began trading on February 8, 1971.

The net market value of mutual funds' current holdings divided by the number of outstanding shares. The product of this division estimates the per-share value of the fund’s assets.

A company’s total revenue excluding all the costs, expenses, and taxes. Net income is the bottom line of a company’s income statement - which may also be called the profit and loss statement.

The value of the assets of a company or an individual excluding the liabilities

It is regarded by many as the largest exchange in the U.S., and possibly in the world. It is located on Wall Street in New York City, NY. 

Non-contributory Retirement Plan: A retirement plan funded solely by employer contributions, without any employee contributions.

This is a retirement or employee benefit plan that is not eligible for favorable tax treatment.

This is the official name of the Social Security program. Along with retirement benefits, it offers disability income, veterans’ pensions, public housing and food stamps.

Under this contract, multiple individuals manage and operate a business venture.

This class of life insurance policies does not expire as long as premiums are kept current and combine a death benefit with a savings component. This savings portion can accumulate a cash value against which the policy owner may be able to borrow funds.

The cost and availability of life insurance depend on various factors, including age, health and the type and amount of insurance purchased. Life insurance policies have several expenses such as mortality and other charges.

On surrendering a policy prematurely, the policyholder also may pay surrender charges and have income tax implications. 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 loan issued by an insurance company to a policyholder. These are secured by the cash value of a life insurance policy. The withdrawals of earnings are fully taxable at ordinary income tax rates. You may also be subject to a 10% federal income tax penalty when you are under the age of 59 and make the withdrawal. Withdrawals may also reduce the benefits and value of the contract.

This is a provision to a life insurance policy that is purchased separately from the basic policy while providing additional benefits at additional costs.

The person or entity who holds an insurance policy; usually the client in whose name an insurance policy is written.

A portfolio lists the combined investments of an individual investor or mutual fund.

This legal document grants one person the authority to act for another person in specific legal or financial matters if said individual becomes incapacitated.

These are securities that represent ownership in a corporation and have a higher claim on a company’s assets and earnings than common stock. Dividends on preferred stock are generally paid out before dividends to common stockholders.

This contract is for those who are contemplating marriage. The agreement describes how their individual property will be divided should they ultimately divorce.

This ratio is calculated by dividing a stock’s price by its earnings per share. Investors use this ratio to find out how much they are paying for a company’s earnings.

The rate at which most credit-worthy or prime customers are charged by commercial banks. It is influenced by the federal funds rate.

The original amount invested in a security, barring the earnings, the face value of a bond or the remaining amount owed on a loan, separate from interest.

Supervised by the court, in this process, a deceased person’s debts are paid and any remaining assets are distributed to his or her heirs.

Anything legally belonging to a person or business. Property may be held in common or privately owned as well.

This is a defined-contribution plan based on which employees share in company profits. The funds within the plan accumulate tax deferred.

This is a legal document providing information required by an investor to make an informed decision about an investment offered for sale to the public. Prospectuses are required by and filed with the Securities and Exchange Commission.

This is a retirement plan that is established and operates within the rules laid down in Section 401(a) of the Internal Revenue Code, which explains its favorable tax treatment.

This is a unit to measure the performance of an investment. The rate of return is calculated by dividing any gain or loss by an investment's initial cost. A rate of return usually contributes towards any income received from the investment in addition to any realized capital gains.

This is a pooled investment trust that invests primarily in real estate. REITs trade like stocks on the major exchanges. It is to be noted that the return and principal value of REIT prices will vary with changes in market conditions. Shares may be worth more or less than their original cost when they are sold.

This refers to the return of an investor’s principal in debt security such as a preferred stock or bond on maturity or cancellation by the entity that originally issued the security. Redemption can also refer to the sale of units in a mutual fund.

This amount must be withdrawn annually from a qualified retirement plan. From April 1 to the rest of the year in which the account holder reaches age 72.

The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.

The grantor of this trust can alter or cancel it. Any income earned from the trust is distributed to the grantor during the life of the trust. Following the grantor’s demise, the contents of the trust are transferred to its beneficiaries based on the terms of the trust.

The possibility that an investment will be lost or will provide less-than-expected returns.

The measurement of an investor’s willingness or ability to handle investment losses.

This refers to the tax-free transfer of assets from one qualified retirement program to another. Rollovers must be made keeping specific requirements in mind to avoid a taxable event.

This is 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. These contributions cannot be made by taxpayers with high incomes.

To qualify for the tax-free and penalty-free withdrawal of earnings, the distributions must meet a five-year holding requirement and occur after age 59. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner’s death.

The original owner of the plan is not required to take minimum annual withdrawals.

This refers to 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.

This is a federal agency with a mandate to protect investors by maintaining fair, orderly, and efficient markets and facilitating capital formation. The SEC acts as one of the primary regulatory agencies for the investment industry.

The account holder can direct the investment of funds in this individual retirement arrangement, subject to certain conditions and limits.

This is a unit of ownership in a corporation or financial asset.

Employees and employers under this qualified retirement plan are allowed to contribute to traditional IRAs set up for employees. SIMPLE plans are available to small businesses with 100 or fewer employees that do not currently offer another retirement plan.

Employers and employees share the obligations and benefits of a life insurance policy under this agreement.

This is an arrangement based on which the premium, cash values, and death benefit of a life insurance policy are split between two parties, which are 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. Various factors affecting the cost and availability of life insurance include age, health, and the type and amount of insurance purchased.

Life insurance policies have expenses such as mortality and other charges. On surrendering a policy prematurely, the policyholder also may pay surrender charges and face income tax implications. Make sure 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.

Under this individual retirement arrangement, 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.

Depending on your individual circumstance, contributions to a traditional IRA may be fully or partially deductible. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a spousal IRA.

Withdrawals are taxed as ordinary income, and if taken before age 59, may be subject to a 10-percent federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70 under the SECURE Act until you meet the earned-income requirement.

The 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 does not serve as a sign of the past performance of a particular investment. Past performance does not guarantee future results either. Individuals cannot invest directly in an index.

This is 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. The return and principal value of stock prices will rise and fall irregularly with changes in market conditions. Shares may be worth more or less than their original cost when sold.

This legal document certifying 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 a stock at a favorable price, often through payroll deduction.

The decision made 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 they own by effectively doubling the number of shares they own. 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.

This is subtracted from income taxes after preliminary tax liability has been calculated.

Before the calculation of taxes, this is an amount that can be subtracted from a taxpayer’s income. Taxpayers may use the standard deduction or may itemize deductions if allowable itemized deductions exceed the standard deduction.

Under this condition of certain plans and accounts, 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.

These are debt securities issued by a state, county, city, or other political entity, such as a school district. They generate income that is exempt from federal income taxes. Income from such bonds may also be exempt from state income taxes in the state where the bond is issued.

Some tax-exempt bonds may be subject to the federal alternative minimum tax. Bond prices rise and fall regularly. Municipal bonds are subject to many risks, including adjustments in interest rates, call risk, market conditions, and default risk. With a rise in interest rates, bond prices generally fall.

Certain municipal bonds may not sell easily. A municipal bond issuer may even fail to make interest or principal payments, which may lead to the issuer defaulting on the bond. In that case, the municipal bond may have little or no value.

If a bond is purchased at a premium, it may result in realized losses. The interest on a municipal bond may be determined to be taxable after purchase.

This is a taxpayer’s gross income, excluding any adjustments, itemized deductions or the standard deduction, and personal exemptions. Taxable income is used to compute tax liability.

This is a method of evaluating securities by examining recent price movements and trends in an attempt to identify patterns to predict future activity. Technical analysis is usually the opposite of fundamental analysis.

Under this form of property ownership, multiple people have an undivided interest in the property and the interest of a deceased owner passes to his or her beneficiaries rather than to the surviving owners.

This is life insurance that provides coverage for a specific period. If the policyholder dies within that time, his or her beneficiaries receive the benefit from the policy. But if the policyholder outlives the term of the policy, the insurance is no longer in effect. The cost and availability of life insurance depend on various factors such as age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. On surrendering a policy prematurely, the policyholder may also pay surrender charges and face income tax implications. Consider finding out 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 is established on the death of the trustor. Using a trust involves a complex set of tax rules and regulations. Before proceeding with a trust, consider consulting a professional who is familiar with the rules and regulations.

The time period an investor plans to hold an investment or portfolio of investments.

A legal document serving as evidence of ownership of an asset or security.

The total earning from an investment or portfolio, including both capital appreciation and any income received.

These are debt securities issued by the United States government. Treasury bills normally reach maturity in less than one year, while Treasury notes take between one and 10 years to reach maturity, and Treasury bonds take between 10 and 30 years to reach maturity.

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 before maturity, it’s uncertain whether its value will be more or less than the original price paid.

A legal arrangement creating a separate entity that 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.

It can be an individual, corporation, or other entity that manages property held in a trust.

This is a means for transferring assets from one qualified retirement program to another without triggering a taxable event.

An act available in some states, allowing assets to be held in a custodian's name for the benefit of a minor without the need for setting up a trust. Once the child to whom the assets have been gifted reaches the age of maturity in their state, the assets become their property and can be used for any purpose.

A permanent life insurance that allows the policyholder to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax-deferred.

The cost and availability of life insurance depend on various factors such as age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. On surrendering a policy prematurely, the policyholder may also pay surrender charges and face income tax implications. 

Consider finding out 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.

Under this provision of the tax code, an individual is allowed to transfer an unlimited amount of assets to his or her spouse at any time including, on the individual's death without triggering a tax liability.

An interest rate that fluctuates with a specific measure or index including current money market rates or a lender's cost of funds.

In this permanent life insurance, the policyholder is allowed to vary the amount and timing of premiums and, by extension, the death benefit. Universal life insurance policies accumulate cash value which grows tax-deferred. Policyholders can direct how this cash value will be allocated among subaccounts offered within the policy within certain limits.

The cost and availability of life insurance depend on various factors such as age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. On surrendering a policy prematurely, the policyholder may also pay surrender charges and face income tax implications. 

Consider finding out 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.

This is the measure of the range of potential fluctuations in a security’s value. A higher volatility means the security’s value can potentially fluctuate over a larger range of potential outcomes.

This is permanent life insurance which includes fixed premiums and death benefits. Whole life insurance policies accumulate cash value which grows tax-deferred. The cost and availability of life insurance depend on various factors such as age, health, and the type and amount of insurance purchased.

Life insurance policies have expenses, including mortality and other charges. On surrendering a policy prematurely, the policyholder may also pay surrender charges and face income tax implications. Consider finding out 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 legal document using which an individual or a couple informs about their wishes regarding the distribution of their assets after death including the guardianship of any minor children.

This is the process by which an employer holds back a part of an employee’s compensation to pay for his or her share of income, Social Security, and Medicare taxes. Amounts withheld are paid to the IRS in the employee’s name.

This is a measure of the performance of an investment. Yield is calculated by dividing the income received from an investment by the investment's initial cost. Yield is different from the rate of return as it accounts only for income. The rate of return also includes appreciation or depreciation in the value of the investment.

It’s a bond that does not pay interest during its life. Zero-coupon bonds are purchased at a discount based on their face value. When it matures, the investor receives the face value of the bond. The market value of a bond will vary with changes in interest rates.

The value of existing bonds typically falls with a rise in rates. An investor will receive the interest payments due, along with their original principal, excluding default by the issuer when the investor holds a bond to maturity. Investments targeting higher yields also involve a higher degree of risk.

Bond prices fluctuate daily. Bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions, and default risk. Bond prices should generally fall with a rise in interest rates. It may be difficult to sell certain municipal bonds.

A bond issuer may even fail to make interest or principal payments, which may lead to the issuer defaulting on the bond. In that case, the bond may an insignificant value. If a bond is purchased at a premium, it may result in realized losses. The interest on a municipal bond may be determined to be taxable after purchase.