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A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Distributions are subject to income taxes, and taking a distribution of the funds before a certain specified age (59 1/2) will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.
Investments considered outside of the traditional asset classes of stocks, bonds and cash. Examples of alternative investments include real estate, commodities, options and financial derivatives. Alternative investments are often used by hedge funds. Alternative investments are subject to various risks, may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor's portfolio.
A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal. Annuity earnings are also tax-deferred so they cannot be withdrawn without penalty until a certain specified age(59 1/2). Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns. An annuity has a death benefit equivalent to the higher of the current value of the annuity or the amount the buyer has paid into it. If the owner dies during the accumulation phase, his or her heirs will receive the accumulated amount in the annuity. This money is subject to ordinary income taxes in addition to estate taxes. Guarantees are based on the claims paying ability of the issuing company. Variable annuities are subject to market risk and may lose value.
The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, in an effort to optimize the risk/reward tradeoff based on an individual's or institution's specific situation and goals. A key concept in financial planning and money management. Asset allocation does not ensure a profit or protect against a loss.
Bonds-Corporate, Municipal, Treasury
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors). Bonds are often divided into different categories based on tax status, credit quality, issuer type, maturity and secured/unsecured (and there are several other ways to classify bonds as well). U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is very low. However, Treasuries do carry some degree of risk including interest rate, credit and market risk. The yield from a bond is made up of three components: coupon interest, capital gains and interest on interest (if a bond pays no coupon interest, the only yield will be capital gains). A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity. A riskier bond has to provide a higher payout to compensate for that additional risk. Some bonds are tax-exempt, and these are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
College Planning/529 Accounts
A state-sponsored program designed to help parents finance education expenses. Section 529 plans are administered by certain investment companies and subject to contribution requirements and investment guidelines. Withdrawals from the account are taxed at the child's tax rate, and anyone can contribute to a Section 529 plan, regardless of their income level. In most cases, the money is invested in a portfolio of stocks, bonds, or mutual funds. Most states offer Section 529 plans. The proceeds can be used only for qualified education withdrawals for non-qualified purposes trigger taxes and a 10% penalty. The investment company administering the account will be in control of how the money is invested, and will charge an ongoing fee for its services.
Defined Benefit Plans
A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.
The preparation of a plan of administration and disposition of one's property before or after death, including will, trusts, gifts, power of attorney, etc.
Long-term profit planning aimed at generating greater return on assets, growth in market share, and at solving foreseeable problems.
Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn. A participant is able to roll over a distribution to another IRA or withdraw funds using a special schedule of early payments made over the participant's life expectancy.
Insurance to be paid to a beneficiary when the insured dies. Guarantees are based on the claims paying ability of the issuing company.
Long Term Care Insurance
An insurance policy that provides benefits for the chronically ill or disabled over a long period of time.
The process of managing money, including investments, budgeting, banking, and taxes. also called investment management.
An investment program funded by shareholders that trades in diversified holdings and is professionally managed. Investing in mutual funds involves risk, including possible loss on principal.
The process of planning for retirement, specifically in terms of making financial plans. Most often, retirement planning involves depositing money into a retirement account, and purposefully saving money for the future. There are many different types of retirement plans available, including an Individual Retirement Account (IRA) and a 401(k) plan. In most cases, employees are provided with a retirement plan by their employer, and contributions to the plan are deducted from the employee's paycheck. Some employers will match a certain percentage of an employee's contributions, adding more money to their account. Most plans have different rules and guidelines, including details such as when the money can be withdrawn.
Separately Managed Accounts
An individual portfolio investing in stocks, bonds and other vehicles that takes into consideration individual risks and objectives. Unlike a mutual fund, an investor in an SMA owns the shares in the portfolio.
An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 1000 shares of stock outstanding and a person owns 50 of them, then he/she owns 5% of the company. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions. Only a certain type of company called a corporation has stock; other types of companies such as sole proprietorships and limited partnerships do not issue stock. also called equity or equity securities or corporate stock. Stock investing involves risk including loss of principal.
Considering the tax implications of individual or business decisions throughout the year, usually with the goal of minimizing the tax liability.