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Common Investment Terms Retirement and Education

Financial terms can be intimidating. The financial industry can even seem to have its own language designed to keep the average person confused. But if you understand the terminology, you'll gain the confidence you need to make good, informed decisions. In this small report, you’ll find some of the most common financial terms and acronyms used in the world of banking, mutual funds, stocks, and real estate transactions.

Although you may need to allow a little time to make sense of all the new terms, they're really not difficult if you dive right in.

Keep this guide handy as you explore the world of investing!

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Common Investment Terms Retirement and Education

  1. 1. Retirement & Education Common Investment Terms
  2. 2. Similar Funds and Funding Plans • Retirement and education terms have been lumped together because these types of investments share many similarities. • With retirement funds, you seek to save for your retirement. With education funds, you seek to save for a college education for you or a loved one. • For both investments, it is frequently possible to make pre-tax contributions and/or take tax-free distributions.
  3. 3. Individual Retirement Account (IRA) • An account by an individual to maintain and invest funds for retirement. Depending on the type of the account, either the contributions to the account are tax-deductible or the earnings are tax-free.
  4. 4. Keogh Plan • This plan is very similar to a 401k, only it is for self- employed individuals, partners, and owners of unincorporated businesses. It is sometimes referred to as an H.R. 10 plan.
  5. 5. Qualified Retirement Plan • These are plans that are acknowledged and authorized by the IRS and required to follow specific rules and regulations. Participants may accumulate money in these accounts on a tax-deferred basis. IRAs and 401(k)s are examples of qualified retirement plans.
  6. 6. Required Minimum Distribution • In general, holders of traditional IRAs must begin withdrawing money from the account by April 1 of the year after turning 70½. The amount required is a minimum distribution determined by your age and life expectancy. The IRS has tables available to determine the required withdrawal. • If required withdrawals are not made on time, the IRS will collect an excise tax. • Roth IRAs aren't subject to minimum distribution requirements until after the Roth owner dies.
  7. 7. Rollover • Under certain circumstances, when changing jobs, for instance, an investor may transfer funds from one qualified retirement account to another. This may be done without a tax penalty.
  8. 8. Roth IRA • Roth IRAs were first available in 1998. This IRA only allows after-tax contributions, but the earnings aren’t taxed. Provided the guidelines are followed, all distributions are not taxable.
  9. 9. Traditional IRA • Traditional IRAs were first available in 1974. Typically, contributions to a traditional IRA are tax-deductible, provided that certain income thresholds are not exceeded.
  10. 10. 401(k) Plan • A retirement plan sponsored by employers. A 401(k) allows employees to make tax-deferred contributions directly from their salaries to the plan. Employers may match a certain percentage of the employee’s contributions.
  11. 11. 403(b) Plan • This is very similar to a 401(k) plan, only it applies to employees of public schools, universities, and non- profit organizations.
  12. 12. 457 Plan • Again, similar to a 401(k), but only applies to employees of state and local governments.
  13. 13. 529 Plan • An investment program that is supported by state governments to help pay future qualified higher education expenses. There are two types of plans: • Pre-Paid 529 Plan: These allow the purchase of academic credits at the present-day cost for future use. The school must be specified when opening the account. • College Savings Plans: These allow contributions to an investment account for application to higher education costs. The school does not have to be specified.
  14. 14. Long Term Saving • Saving for your retirement and your kids’ college education is usually a long-term endeavor – or at least it should be! It’s much easier if you spread it out over a long time. • Start soon to begin saving for a bright financial future and enjoy the benefit of tax-favored funds and the power of long-term interest.
  15. 15. We hope you enjoyed your Special Report! Curtis Roese is an experienced professional with extensive experience in personal finance and small business matters. Curtis writes and publishes articles, courses, guides and special reports on his personal finance blog. Common Cents Wisdom is a website with hundreds of informative articles, special reports, resources to assist you with all of your financial concerns and a free monthly newsletter. Sign up to receive your free eBook "Common Cents" and get started today on the road to financial freedom!
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