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MARKET DOG
Economic Research & Planning
401(k)
An employer sponsered defined contribution plan designed for employees to save for retirement using pre-taxed earned income for investing. These retirement plans can include matching contributions from the employer and the contributions and earnings made to these accounts are tax deferred, which lowers taxable income in the present while enabling more money to be invested.
Annuity
An investment contract with an insurance company that provides payments to a contract holder for a specific period of time. There are various types of annuities either classified as an Immediate income or deferred income annuity. Many annuities can be complicated and seeking out professional advice is warranted.
Certificate of Deposit (CD's)
A savings product offered by banks and credit unions that pay interest in exchange for holding a principle amount of funds for a fixed period of time. This can range from a few months to 5 years and is considered one of the safest savings products available.
Defined Contribution Plan
Employer sponsored retirement plans including 401(k), 403(b), and 457(b). These plans rely on the employee making contributions and managing investments and offer a tax advantaged approach for investing with pre-tax dollars with options for employers to contribute as well.
Effective Tax Rate
The effective tax rate is a good measure of a persons tax efficiency and total tax burden. The effective tax rate is found by dividing the amount paid for taxes by taxable income of the individual. Because this uses taxable incom, it takes into consideration deductions you've taken advantage of, illustrating how well your overall tax plan is working.
Early Withdrawal Penalty
This is a 10% tax on any amount withdrawn from an IRA or a defined contribution retirement plan such as a 401k. This penalty is applied for individuals younger than 59 1/2 years of age or for those that do not qualify for the exemptions to this penalty.
Matching Contribution
Contributions made by an employer to a defined contribution plan for an employee. These contributions are structured by a certain percentage that is matched of what the employee contributes, up to a certain percentage of the employee's salary. These contributions can also follow a vesting schedule.
Money Market Account (MMA)
An interest earning account offered by banks and credit unions that combine features of a savings account and checking account with certain restrictions. This account usually can earn higher interest than traditional savings accounts while offering features like a debit card and check writing.
Investment Grade
A rating by either Standard & Poor's or Moody's Investment Services indicating a that a particular Bond has a relatively low chance of default when comparing to non-investment grade Bonds. Investment grade is AAA/Aaa to BBB/Bbb.
Lifetime Income
Income you expect to receive for the rest of your life. The most common examples of this are social security, pensions, and certain types of annuities.
Pre-tax Contributions
Contributions made to accounts such as an IRA or 401(k) that lower your taxable income. These contributions grow tax deferred until you withdraw them.
Required Minimum Distribution
The minimum amount that owners of a tax advantaged account such as an IRA or 401(k) have to withdraw annually after the age of 72.
Roth IRA and Roth 401(k)
The Roth versions of these account types offer the tax advantage of using after tax dollars for investments to grow with tax free status on any earnings after the age of 59 1/2. Because these accounts use after tax dollars, people can take out any contributions without a penalty, although federal income taxes still apply to any earnings.
Short-term Investments
Also known as marketable securities, these are investments that have high liquidity with very low risk and convert into cash in less than 5 years. Most common examples of these are certificate of deposit (CD's), money market accounts, short-term treasury bills, and high-yield savings accounts.
Vesting
The process at which an employee acquires ownership over employer contributions. This process is referring to a vesting schedule set up by the employer as an incentive plan and structures how long and by how much an employee gains ownership over certain benefits.