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401(k) - A corporate retirement plan, named for the section of the Internal Revenue Code, that allows employees to contribute pre-tax dollars to a company pool invested in stocks, bonds, or mutual funds. Since money taken out of an employee's salary is not taxable until withdrawn, and all earnings are likewise tax-deferred, a substantial amount of capital can be accumulated.
403(b) - A qualified retirement plan for the employees of non-profit institutions (such as colleges and universities, hospitals, museums, research institutes and foundations) and public schools, named for the section of Internal Revenue Code authorizing their use. Beneficiary - A recipient of proceeds from a qualified retirement plan or insurance policy upon the death of the registered owner. Contribution - A payment to a retirement or benefit plan. Deferrals - Contributions made to retirement plan by employee pre-tax. Defined Benefit Plan - 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. Defined Contribution Plan - A company retirement plan, such as a 401(k) or 403(b), in which the employee elects to defer some amount of his/her salary into the plan and bears the investment risk. Employee Stock Ownership Plan - A qualified retirement plan established by a company that buys stock of the company on behalf of employees for the purpose of motivating the employees and providing tax benefits to the company. IRA (Individual Retirement Account) - A tax-deferred savings plan to which employed individuals can contribute up to $3,000 per year (indexed). KEOGH - A retirement plan for self-employees individuals and their employees which allows tax-deductible contributions of $40,000 or 25% of earned income, whichever is less. Non-qualified Retirement Plan - A retirement plan that does not meet the IRS requirements for favorable tax treatment. Qualified Retirement Plan - A plan that meets the requirements of Internal Revenue Code Section 401(a) and is, therefore, eligible for favorable tax treatment. Rollover - A transfer of a lump sum distribution from a qualified retirement plan to an IRA. Once a rollover is completed, no additional contributions should be made to preserve the ability to transfer the assets to another pension or profit-sharing plan in the future. SEP - The Simplified Employee Pension Plan is a retirement plan that allows small businesses to contribute to IRA's for their employees. Tax-Deferred - A term describing an investment whose earnings are free from taxation until they are withdrawn by the investor. Most qualified retirement plans, including IRA's, are tax-deferred investments. Vesting -An employee's or participant's right to receive retirement benefits, regardless of whether the individual remains with the employer. Vesting is usually earned over a specified number of year. |
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