Glossary of Financial Planning Terms

• 401(k) Plan - A qualified retirement plan established by employers which allows eligible employees to make salary-deferred (salary-reduction) contributions on a pre- or post-tax basis. Employers may make matching or partially-matching contributions to the plan on behalf of eligible employees; they may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis. (See also Employee Contribution Plan.)
• Blackout Period - 1. A temporary period of time in which enrollment access to a company retirement or investment plan is limited or denied. 2. A period of time during which employees of a company with a retirement or investment plan cannot modify their plans.
• Cafeteria Plan - An employee benefit plan which allows its members to choose from a variety of benefits to formulate a plan that best suits their individual needs; also known as a flexible benefit plan.
• Coverdell Education Savings Account (ESA) - A tax-deferred account created by the U.S. government to assist families in funding higher-education expenses.
• Distribution - A withdrawal of assets from a retirement account that are then paid to the account owner or beneficiary. The account owner (or beneficiary) may be required to pay income tax on distributions received during the year. Early-distribution penalties may also apply if the distribution occurs while the account owner is under the age of 59½.
• Early Withdrawal - The removal of funds from a fixed-term investment before its maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account before a prescribed time, such as the account owner's attainment of a minimum age requirement. An early withdrawal fee is usually imposed, which acts as a deterrent to frequent withdrawals before the end of the early withdrawal period.
• Employee Contribution Plan - A company-sponsored retirement plan which allows employees to make salary-deferred deposits (contributions) into an account; some companies match those payments. (See also 401(k) Plan.)
• Estate - The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death.
• Heir - A person who inherits some or all of the estate of a recently deceased person. The legal successor is usually related to the deceased by a direct bloodline or has been designated in a will or by a legal authority.
• Individual Retirement Account (IRA) - A retirement investing tool that can be either an "Individual Retirement Account" or an "Individual Retirement Annuity". There are several different types: Traditional IRAs, Roth IRAs, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs, and Simplified Employee Pension (SEP) IRAs. Traditional and Roth IRAs are established by individual taxpayers; Roth IRA contributions are not tax-deductible. SEPs and SIMPLEs are retirement plans established by employers, with individual participant's contributions being made to their own SEP- and SIMPLE IRAs.
• Intestacy - The condition of dying without a legal will, upon which the government assumes responsibility and determines the method by which assets are to be distributed.
• Keogh Plan - A defined-benefit plan or defined-contribution plan established by a self-employed individual for him- or herself and his or her employees.
• Lump-Sum Distribution - A one-time payment for the entire amount due (or full distribution of funds made during the same tax year), rather than breaking payments into smaller installments; some lump-sum distributions receive special tax treatment.