401(a) plan A retirement account with many of the characteristics of a 403(b) plan, except that only the employer may contribute to the 401(a).

401(k) plans Broad label for a variety of employer-sponsored retirement savings incentive programs.

403(b) plan A retirement plan available to employees of public schools, nonprofit organizations, or the clergy. It is identical to the 401(k), except that employers need not contribute, and they aren’t subject to 401(k)’s stringent Employee Retirement Income Security Act (ERISA) rules.

457 deferred-compensation plan Sometimes called a deferred-comp plan, this retirement plan defers an employee’s pay by the amount contributed, a characteristic shared by 401(k) and SIMPLE plans.

457(b) plan This variation of a 457 deferred-compensation plan is provided by state and local governments.

457(f) plan A variation of a 457 deferred-compensation plan offered by large, tax-exempt organizations like hospitals and universities, usually for their upper management employees. They also are most often used to attract and retain high-level executives.

72(t) An IRA-related strategy that enables avoidance of the 10 percent penalty on withdrawals as long as account holders make a series of substantially equal withdrawals at least annually.

account aggregator An online platform that presents data from multiple accounts in a single interface that stores log-in information and simplifies web access to personal financial information.

active management An investment management style that presumes that investments guided by a fund manager and informed by industry and economic insight should perform better than other similar investments.

adjusted gross income (AGI) The amount of income calculated by adding work income and other income such as investment interest and dividends or alimony. It excludes such things as alimony paid and the cost of health insurance paid by the self-employed.

administrative fee This fee covers the cost of running the plan itself, including expenses such as the cost of preparing annual reports, running required discrimination tests, and supporting the website and customer service department.

after-tax contribution A contribution to an IRA that is not deductible from a filer’s tax obligation.

alternative minimum tax A tax created to close loopholes that enabled some super-rich taxpayers to pay unfairly low or even no taxes by resorting to legal tax shelters. Unfortunately, the tax lacks indexes to inflation, making more middle-class families vulnerable to assessment.

annual expense ratio The percentage of plan assets that are paid to cover operating, management, and marketing costs.

asset allocation An investment recipe for all an individual’s accounts, dictating the percentage of a portfolio invested in stocks, bonds, or cash.

benchmark A standard used to compare performance, such as the Standard and Poor’s 500 Index.

capital gain tax rate The percentage of investing profits that must be paid in taxes, calculated as a proportion of the profit or capital gain of an investment.

certificate of deposit A bank’s promissory note to repay the amount deposited, with interest, at a future date, typically one month to five years away.

cliff vesting A vesting schedule in which none of an employer’s contribution becomes an asset of the employee until the employee reaches a specified work anniversary. At the anniversary date, the employer’s full contribution belongs to the employee.

compound interest An investment principal in which interest is paid not only on the principal saved but also on the accumulated interest from prior periods that has not been withdrawn.

contribution The amount of cash or other assets deposited in a retirement account.

defined-benefit plan A retirement plan such as a traditional pension that pays a specific retirement benefit once certain requirements such as years of service or age are met.

defined-contribution plan A retirement plan incorporating specific rules that dictate when deposits can be made, who can make them, and how big the deposit can be.

direct-transfer rollover Also known as a trustee-to-trustee transfer, a process that directly moves assets from a 401(k) plan to an individual retirement account.

dollar-cost averaging A savings strategy involving investing the same dollar amount at fixed intervals. As share prices fluctuate, dollar-cost averaging boosts investment performance by buying fewer shares when prices are up and more shares when prices are down.

Employee Retirement Income Security Act (ERISA) This federal law sets the standards for employee retirement and health-care benefits.

exchange-traded funds (ETFs) Pooled investment accounts that resemble mutual funds in that they hold a basket of many individual investments but that are traded directly on the stock exchanges by investors buying and selling their shares like stocks.

fee-only financial planner A financial advisor who charges only for his advice, based on the consultation duration or project scope, and who doesn’t sell investment products for commission in order to avoid conflict of interest in investment choice recommendations.

fixed annuity A tax-deferred financial instrument marketed by insurance companies that pays a fixed rate of interest and that readjusts on a yearly basis.

graded vesting A vesting schedule in which an employer’s contribution vests gradually over time, in stages or grades.

income tax rate The percentage of one’s income that must be paid to local, state, or federal government.

individual retirement accounts (IRA) Retirement plan accounts that carry a tax advantage intended to encourage savings.

IRA basis The amount contributed to an IRA that isn’t eligible for tax deduction.

IRA trustee fees Costs paid by the investor that can include sales commissions, management fees, and a “12-b1” marketing fee.

lifestyle funds Investment pools that resemble target-date funds in that they are a mix of mutual funds in an asset allocation that the mutual fund company chooses but that cater to risk tolerances.

marginal tax rate The rate on the highest bracket a taxpayer’s income reached.

matching contribution An employer plan-match option under which an employer promises to match a certain percentage of each employee’s contribution up to a specific percentage of their pay.

medical IRA Also known as a health savings account, an individual retirement account in which account holders can deposit pretax money to pay for medical expenses.

modified adjusted gross income Also known as modified AGI, the adjusted gross income from an IRA withdrawal by someone age 59½ or older, disabled or deceased, using the withdrawals to pay for college or other qualified higher education expenses, or using withdrawals toward a first-time home purchase.

money market deposit account An investment account that often pays lower interest than a CD, but whose assets are accessible anytime without waiting for a future maturity date.

Monte Carlo calculator A calculator that generates a measure of the probability that a given investment outcome scenario will result in a financially comfortable retirement based on expected assets, probable lifetime, and economic conditions.

monthly money meeting (M&Ms) A monthly financial review during which individuals, spouses, partners, and perhaps children review and update financial and retirement goals. Meetings should review income and expenses, discuss upcoming expenses and long-term spending goals, and assess cash allowances

mutual funds A combination of individual investments—stocks, bonds, and cash—bundled together into one product.

nonretirement accounts Bank or mutual fund accounts that are not held inside IRAs and on which taxes must be paid as accrued.

passive management An investment management style that presumes that fund managers are unlikely to consistently outperform the market over the long term and that seeks to simply match the market’s performance.

plan provider The company hired to administer an employer-sponsored retirement plan, often acting as the plan trustee and handling the back-office operations required of a 401(k) plan.

pretax contribution A contribution to an IRA that a filer is permitted to deduct from his tax obligation.

prime rate The interest rate commercial banks charge their best customers, generally large companies.

profit-sharing contribution An employer plan-match option that enables employers to decide each year whether to contribute to the employees’ plans.

QUADRO Formally known as a qualified domestic relation order, a divorce-specific transfer between two people’s accounts requiring a court order.

rebalancing Adjustments to an asset allocation that correct for different assets having performed differently over time, eventually comprising different portfolio percentages than intended.

Roth 401(k) An employer-sponsored retirement account in which tax liability accrues upon contribution but whose account earnings and withdrawals are tax-free.

Roth 403(b) An employer-sponsored retirement account offered to employees of public schools, nonprofit organizations, and the clergy in which tax liability accrues upon contribution but whose account earnings and withdrawals are tax-free.

Roth IRA A form of individual retirement account in which taxes do not accrue on withdrawn funds, whether earnings or basis.

safe-harbor 401(k) An employee-sponsored plan that reduces an employer’s effort and cost in running the plan’s nondiscrimination tests.

SEP plan Formally known as the Simplified Employee Pension plan, a retirement option popular with people who are self-employed and who don’t have employees in which 100 percent of the contributions come from the employer.

SIMPLE 401(k) plan A retirement plan that combines the features of SIMPLE IRAs and regular 401(k) plans, including contribution limits and employer match rules of SIMPLE plans.

SIMPLE plan Formally known as the Savings Incentive Match Plan for Employees, a common option in companies with 30 or fewer employees but available to companies with up to 100 employees, an IRA account into which both employee and employer can contribute.

single-person 401(k) Also called a solo 401(k) and a self-employed 401(k), a retirement plan that simplifies the administration of a 401(k) enough to make it affordable for single-person companies and very small enterprises.

60-day rollover A transfer of assets from a 401(k) plan to an individual retirement account that permits use of the money during a 60-day period and that assesses a 10 percent early withdrawal penalty unless the rollover is completed before the 60-day period ends.

Summary Plan Description (SPD) The book of rules that governs your specific 401(k) plan, including when an employee will be eligible to participate and the specifics about how to contribute to the account and how money can be withdrawn.

target-date fund A mutual fund whose allocations of stocks, bonds, and cash are tailored to perform best with a time-specific event, such as retirement, in mind.

tax-deductible The quality of income or capital gains generated by investments that can reduce tax liability by the amount deposited into a retirement account.

tax-deferred The quality of income or capital gains generated by investments that do not become taxable under law until funds are withdrawn from an account.

taxable income The earnings from an individual’s job and from interest or dividends from his investments on which he must pay tax each year.

variable annuities A tax-deferred financial instrument marketed by insurance companies that contains a basket of individual stock or bond investments called sub-accounts and that change in value based on the performance of the investments in the sub-accounts.

withdrawal The cash value of an asset redeemed from a retirement account.