Glossary of Financial Terms
529 College Savings Plan: one of the more popular ways to save for college. With a 529 plan you can save for anyone - your child, grandchild, neice, nephew, a friend or yourself. You can contribute up to $13,000 ($26,000 for married couples) annually without gift tax consequences. And with a special election, you can invest up to $65,000 ($130,000 for married couples) at one time by accelerating five years worth of investments. Earnings grow tax-free. Withdrawals for qualified higher education expenses are free from federal tax. There are no income limits. You maintain control of the assets. For more information and links go to the U.S. Securtiies Exchange Commission website.
401(k) accounts: a plan that allows an employee to save for retirement by having a portion of his or her wages paid directly into a 401(k) account that is administered by the employer. These deposits are tax-deferred, meaning tax is not due on these earnings until they are withdrawn. The employee can select from an assortment of mutual funds and many companies also offer the option of purchasing company stock.
IRA- Individual Retirement Account: a retirement plan account that provides some tax advantages for retirement savings. There are a number of different types of IRAs:
Roth IRA: contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. RMD's at age 70 1/2 are not required as they are with traditional IRAs.
Traditional IRA: within certain income limitations, contributions are tax-deductible, all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as ordinary income.
SEP IRA: a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a traditional IRA established in the employee's name, instead of to a pension fund account in the company's name.
SIMPLE IRA: an employee pension plan that allows both employer and employee contributions, similar to a 401(k) plan, but with lower contribution limits and simpler administration.
For more Information see Publication 590 from the IRS.