401(k)
An employer-sponsored retirement plan that lets eligible employees save from their paychecks, often with tax advantages and sometimes an employer match.
Resource Center · Financial Literacy
Words worth knowing.
Use this glossary to build vocabulary, frame a question, and prepare for a more useful conversation with a qualified professional. Definitions are general education, not recommendations.
403(b)
A retirement plan commonly offered by public schools and certain tax-exempt organizations. Contributions and withdrawals follow plan and tax rules that can differ from other retirement accounts.
529 plan
A tax-advantaged account designed to help pay for qualified education expenses. Rules, investment choices, and tax treatment vary by plan and state.
ADV
Form ADV is a regulatory filing some financial firms use to describe their business, services, fees, conflicts, and disciplinary history. It can help people research a firm.
Asset allocation
The way a portfolio is divided among asset categories such as stocks, bonds, cash, or other investments. The mix is usually connected to goals, time horizon, and risk.
Beneficiary
The person, trust, or organization designated to receive an account or insurance benefit after the owner’s death. Beneficiary designations should be reviewed as life circumstances change.
Bond
A debt investment in which an investor lends money to a government, municipality, or company for a defined period. The issuer generally promises interest payments and repayment of principal, subject to risk.
Cash flow
The money coming into and going out of a household or business during a period. Reviewing cash flow can help clarify spending, saving capacity, and upcoming needs.
Catch-up contribution
An additional retirement-plan contribution allowed for eligible participants who are at or above a specified age. Annual limits and special rules are set by law and plan type.
College savings
Money set aside over time for future education costs. A savings strategy may use a 529 plan or other account, with different tax rules and investment risks.
Compound growth
Growth that builds on both the original amount and prior growth. Time, contributions, return assumptions, and fees all affect the result.
Contribution limit
The maximum amount that may be contributed to a particular retirement or savings account under applicable law and plan rules for a given period.
Disability insurance
Insurance designed to replace part of a person’s income if an illness or injury prevents them from working. Coverage definitions, waiting periods, and exclusions matter.
Diversification
Spreading investments across different holdings, sectors, or asset categories so one outcome does not determine the whole result. Diversification does not eliminate market loss.
Dollar-cost averaging
Investing a set amount at regular intervals regardless of market conditions. It can create discipline, but it does not guarantee a profit or protect against loss.
Emergency fund
Accessible savings set aside for unexpected expenses or a disruption in income. The appropriate amount depends on household or business needs, obligations, and resources.
ERISA
The Employee Retirement Income Security Act is a federal law that sets standards for many private-sector retirement and welfare benefit plans, including reporting and disclosure requirements.
Estate planning
A coordinated set of legal and financial instructions for incapacity, healthcare decisions, and the transfer of assets. It often involves documents such as a will, trust, and powers of attorney.
ETF
An exchange-traded fund is an investment vehicle that holds a basket of securities and trades on an exchange during the day. Its price can move throughout the trading session.
Expense ratio
The percentage of a fund’s assets used each year to pay operating expenses. It is generally reflected in the fund’s returns rather than billed as a separate household invoice.
Fee-only
A compensation model in which a financial professional is paid directly by clients or through an agreed advisory fee, rather than commissions from product sales. Ask how a professional is compensated.
FINRA
The Financial Industry Regulatory Authority is a self-regulatory organization for parts of the U.S. financial industry. FINRA BrokerCheck provides public background information.
Form 5500
An annual reporting and disclosure form for many employee benefit plans. It helps regulators, participants, and the public review information about a plan’s operation and financial condition.
Index fund
A mutual fund or ETF designed to track the performance of a selected market index. Tracking, fees, and the index itself affect results.
Inflation
A general increase in prices that can reduce the purchasing power of money over time. Long-term planning often considers how future costs may change.
Investment policy statement
A written document that describes an investment program’s goals, responsibilities, risk guidelines, strategy, and review process. It can help create a consistent decision framework.
IRA
An individual retirement account that may provide tax advantages for eligible contributions and withdrawals. Traditional, Roth, and other IRA types have different rules.
Life insurance
A contract that may pay a death benefit to named beneficiaries when the insured person dies, subject to the policy’s terms. Coverage needs and policy costs vary widely.
Long-term care insurance
Insurance intended to help cover certain extended care services, such as assistance with daily activities, when policy conditions are met. Benefits, eligibility, and exclusions vary.
Medicare
A federal health insurance program primarily for people age 65 or older and certain younger people with qualifying disabilities or conditions. Enrollment and coverage choices require careful review.
Minimum payment
The smallest amount a credit card issuer requires a borrower to pay by the due date. Paying only the minimum can extend payoff time and increase total interest.
Mutual fund
An investment company that pools money from many investors to buy a portfolio of securities. Investors own fund shares and bear the fund’s investment risks and expenses.
Net worth
The value of what a person or business owns minus what it owes. Tracking net worth over time can provide a broad view of financial progress.
Pension
A retirement arrangement that generally promises a benefit based on a formula involving factors such as pay and years of service. The plan document controls the actual benefit.
Permanent life insurance
Life insurance designed to remain in force for life when required premiums are paid, often with a cash value component. Costs and policy guarantees differ by product.
Plan oversight
The process of reviewing how an employee benefit plan operates, communicates, and serves its participants. Responsibilities depend on the plan documents, service agreements, and applicable law.
Plan sponsor
The employer or organization that establishes and maintains an employee benefit plan. A sponsor coordinates plan administration, communications, and participant access according to the plan documents and applicable law.
Power of attorney
A legal document that authorizes another person to act on someone’s behalf within stated limits. Financial and healthcare powers of attorney are distinct documents in many states.
Profit sharing plan
An employer-sponsored retirement plan that may allocate contributions to eligible employees based on a formula chosen by the employer. Contributions are generally discretionary within plan rules.
Rebalancing
Adjusting a portfolio back toward its intended allocation after market movement or changing circumstances. The timing and tax consequences deserve careful consideration.
Required minimum distribution
A minimum amount that some retirement account owners must withdraw each year after reaching a legally specified age, with exceptions and tax rules that change over time.
Risk tolerance
The amount of investment uncertainty or loss a person is prepared and able to accept. It is one part of a broader assessment that can also include capacity and time horizon.
RMD
See required minimum distribution. The acronym is commonly used for the annual withdrawal requirement that applies to some retirement accounts.
Roth conversion
Moving eligible assets from a traditional retirement account to a Roth account, generally creating taxable income on the converted amount. A tax professional can help evaluate the consequences.
Roth IRA
An individual retirement account funded with after-tax contributions that may allow tax-free qualified withdrawals. Eligibility, contribution limits, and distribution rules apply.
Roth vs. traditional
A Roth account generally uses after-tax contributions for potentially tax-free qualified withdrawals, while a traditional account may offer a tax deduction with taxable withdrawals later. The better fit depends on the situation.
SEC
The U.S. Securities and Exchange Commission is the federal agency responsible for enforcing securities laws and overseeing major parts of the U.S. securities markets.
Stocks
Stocks represent ownership interests in a company. Their values can rise or fall based on company performance, markets, economic conditions, and other factors.
Succession planning
The process of preparing for leadership, ownership, and operational continuity when a business owner or key leader leaves, retires, or dies. It can include legal, tax, financial, and people considerations.
Term life insurance
Life insurance that provides coverage for a specified period, often at a lower initial cost than permanent coverage. Renewal, conversion, and expiration terms vary by policy.
Trust
A legal arrangement in which a trustee holds and manages property for beneficiaries under written instructions. Trusts can serve different planning purposes and require qualified legal guidance.
Umbrella policy
Liability insurance that may provide additional coverage above certain underlying policies, subject to its own limits and exclusions. It can be part of a broader risk review.
Vesting
The point at which a participant earns a nonforfeitable right to employer contributions or another benefit under a plan’s schedule. Employee contributions are generally immediately vested, but plan rules govern.
Will
A legal document that states how certain property should be distributed after death and may name guardians or an executor. A will does not replace every beneficiary designation or planning document.
Wrap fee
A fee that generally bundles investment advisory, brokerage, and related services into one charge. Investors should understand what services are included and how the fee is calculated.
Financial terms can have different meanings depending on a plan, contract, or law. Bring a definition and your questions to a qualified professional when the decision affects your situation.
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