A qualified retirement plan in which earnings grow tax deferred and distributions are tax free. Contributions to a Roth IRA are generally not deductible for tax purposes, and there are income and contribution limits. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Definitions in One Spot to Make This Whole Thing Easier Because We Get It: You Don’t Get It.
A tax-free transfer of assets from one qualified retirement program to another. Rollovers must be made in accordance with specific requirements to avoid a taxable event.
A measurement of an investor’s willingness or ability to handle investment losses.
The chance an investment will be lost or will provide less-than-expected returns.
A trust that can be altered or canceled by its grantor. During the life of the trust, any income earned is distributed to the grantor; upon the grantor’s death, the contents of the trust are transferred to its beneficiaries according to the terms of the trust.
The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.
The amount which must be withdrawn annually from a qualified retirement plan beginning April 1 of the year following the year in which the account holder reaches age 70½.
The return of an investor’s principal in a debt security—such as a preferred stock or bond—upon maturity or cancellation by the entity that originally issued the security. Redemption can also refer to the sale of units in a mutual fund.
A pooled investment that invests primarily in real estate. REITs trade like stocks on the major exchanges. Keep in mind that the return and principal value of REIT prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
A measure of the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment’s initial cost. Rates of return usually account for any income received from the investment in addition to any realized capital gains.
A retirement plan that is established and operates within the rules laid down in Section 401(a) of the Internal Revenue Code, and thus receives favorable tax treatment.
A legal document that provides the information an investor needs to make an informed decision about an investment offered for sale to the public. Prospectuses are required by and filed with the Securities and Exchange Commission.
Anything over which a person or business has legal title. Property may be held in common or privately owned.
A defined-contribution plan under which employees share in company profits. The funds within the plan accumulate tax deferred.
The court-supervised process in which a deceased person’s debts are paid and any remaining assets distributed to his or her heirs.
The original amount invested in a security, excluding earnings; the face value of a bond; or the remaining amount owed on a loan, separate from interest.
The interest rate commercial banks charge their most credit-worthy or “prime” customers. The prime interest rate is influenced by the federal funds rate.
A ratio calculated by dividing a stock’s price by its earnings per share. Investors use this ratio to learn how much they are paying for a company’s earnings.
A contract entered into by those contemplating marriage that sets forth how their individual property will be divided should they ultimately divorce.
Securities that represent ownership in a corporation and have a higher claim on a company’s assets and earnings than common stock. Dividends on preferred stock are generally paid out before dividends to common stockholders.