Investment Glossary

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A B C D E I M Q R S T U

A

AGI (Adjusted Gross Income)

All the money earned in a calendar year, less certain adjustments for alimony, moving expenses, deductible retirement-plan contributions and other deductions.

Alternative Investments

Investments considered outside of the traditional asset classes of stocks, bonds and cash. Examples of alternative investments include hedge funds, real estate, commodities and precious metals.

Annual Contribution Limits

There are limits to the amount of money employees and employers can contribute to retirement accounts each year. Limits are set by the IRS and differ depending on the type of retirement plan.

B

Bonds

Certificates issued by a government or a public company promising to repay borrowed money at a fixed rate of interest at a specified time.

C

Certificate of Deposit (CD)

Certificates issued by a bank to a person depositing money for a specified length of time.

Contributions

Qualified IRA contributions include annual contributions as well as “conversions” to a Roth IRA. These rollover funds are treated as additional contributions with applicable IRA regulations.

D

Distributions (Withdrawals)

Any amount of funds taken out of the IRA. Traditional, Roth, SEP or SIMPLE IRA distributions may be comprised of earnings, additional contributions and/or conversions. IRA owners are encouraged to review the Traditional and/or Roth IRA rules to determine if the distributions are subject to tax and/or penalty.

E

Earnings

The money earned in the IRA as it grows in value, above and beyond the contributions that are made from year to year.

Exchange Traded Funds (ETFs)

A basket of securities similar to mutual funds. However, they trade on exchanges and are priced throughout the day, like stocks, instead of being priced and traded at the end of every trading day like mutual funds.

I

Individual Retirement Account (IRA)

An individual retirement account allows individuals to contribute pre- or post-tax (as is the for Roth IRAs) income that can be invested and grow tax-deferred or tax-free (for Roth IRAs). Self-directed IRAs can invest in a wide range from investment options from traditional stocks, bonds and mutual funds to alternative assets like hedge funds, real estate and precious metals.

M

Modified Adjusted Gross Income

In the United States, the amount of income used to determine how much of a taxpayer's IRA contributions are tax deductible. One calculates the modified AGI by taking the adjusted gross income and adding back various deductions, notably interest on student loans, foreign income deductions, foreign housing deductions, and higher education costs. Depending on the modified AGI, some or all of one's IRA contributions will not be deductible.

Money Market Accounts

A money market account is an interest-bearing account that shares some similarities to typical savings and checking accounts (like FDIC insurance). However, these accounts typically pay a higher interest rate than traditional savings or checking accounts and often also require a higher minimum balance.

Mutual Funds

Mutual funds are pooled investment vehicles whose underlying assets are professionally managed by money managers who utilize a variety of strategies and investment instruments to achieve the fund’s stated objective. They are regulated by the SEC and are traded on public exchanges on a daily basis.

Q

Qualified Distribution (Roth IRA)

A withdrawal from a Roth IRA that is:

  • Made on or after the date the account owner becomes age 59½.
  • Made to a beneficiary or to the estate after the account owner dies;
  • Made to the account owner should he/she become disabled within the definition of the IRS code; or,
  • Used to pay for qualified first-time homebuyer expenses.

However, even if one of the qualification above is met, the distribution is still not qualified if it is made within a five tax-year period following the first day of the year in which there first was a contribution or a conversion to the Roth IRA.

 

R

Required Minimum Distribution (RMD)

The minimum annual required distribution amount for an IRA holder who reaches age 70½.

Rollover IRA

Rollover IRAs are simply Traditional IRAs used to rollover eligible distributions from employer-sponsored retirements plans without incurring tax penalties and where the investments retain their tax-deferred status.

Roth IRA

A Roth IRA is a tax-advantaged account that can hold a wide range of investment types; from traditional stocks, bonds and mutual funds to alternatives like private securities, precious metals and marketplace loans. Investors who meet specific income criteria can contribute up to the annual limit to Roth IRAs each year. Any earnings on assets in a Roth IRA grow tax-free. Account distributions also are tax-free, as long as certain requirements are met. Distributions are penalty-free after age 59 ½. There is no minimum distribution requirement at age 70 ½.

S

SEP (Simplified Employee Pension) IRA

An employer, or self-employed individual, can establish a Simplified Employee Pension (SEP) plan and make contributions to SEP IRAs for each employee. These are Traditional IRAs. The employer must contribute the same percentage of compensation to each employee in years contributions are made. SEP IRAs are funded 100% by the employer; employees do not contribute.

SIMPLE (Savings Incentive Match Plan for Employees) IRA

Employers with fewer than 100 employees (including self-employed, sole proprietorships and partnerships) and no other current retirement plan can establish an individual retirement accounts for each participating employee. SIMPLE IRAs have requirements similar to Traditional IRAs but participants enjoy higher individual contribution limits and the employer is required to make contributions to the plan.

Spousal IRA

A Traditional or Roth IRA funded by a married taxpayer in the name of his or her spouse who has less than the maximum allowable IRA contribution in annual compensation. The couple must file a joint tax return for the year of the contribution. The working spouse may contribute up to the maximum annual limits to the spousal and his/her own Traditional or Roth IRA.

Stocks

Stocks represent the ownership of a percentage of equity in a publicly-traded company. The stock of a company is separated into shares, which can be purchased individually or in specific amounts by investors. Companies have the ability to issue new shares at their discretion. A company may offer different types of shares, or classes. Each class can carry different ownership rules, share values and privileges. A stock certificate details the specific parameters of each stock and signifies ownership in the company.

T

Traditional Investments

Commonly used investment assets such as equities, bonds, mutual funds and money market products.

Traditional IRA

An individual retirement account (IRA) is a tax-advantaged account that can hold a wide range of investment types; from traditional stocks, bonds and mutual funds to alternatives like private securities, precious metals and marketplace loans. Individuals can contribute up to the annual limit to Traditional IRAs each year. These contributions may be tax-deductible. Any earnings on assets in a Traditional IRA grow tax-deferred. Taxes are paid when the investors begins to take distributions from the account. Distributions are penalty-free after age 59 ½ and must begin by age 70 ½.

U

Unrelated Business Income Tax (UBIT)

The tax on unrelated business taxable income is called Unrelated Business Income Tax (UBIT) and applies to Individual Retirement Accounts (IRAs) including Traditional, Roth, SEP and SIMPLE IRAs. For more information, see IRS Publication 598.

Unrelated Business Taxable Income (UBTI)

Unrelated Business Taxable Income (UBTI) is generally defined as the gross income derived from any unrelated trade or business regularly carried out by an exempt organization. For more information, see IRS Publication 598.