Investment Club Education Series: Investing Terms | Part 7

 Lauren Wilson

September 4, 2019

Build Your Vocabulary with These Common Investment Terms - Part 7

When beginning to invest, you will likely encounter new terms, strategies, and ways of thinking that may make your research seem daunting. There is no reason to be intimidated by investing and by learning a few key basics, you’ll quickly be able to ‘speak the lingo’ and participate in investment discussions.

In our first Investment Club Education series, we are sharing common investment terms to help you build your investing vocabulary.

In Part 7 we are sharing common investment terms and opens when it comes to retirement. These options are acronym heavy, so taking a moment to spell them out and understand some of the differences and similarities will help you in starting to understand the options available and how you might want to best invest for your 'golden years'. Are you using any of these retirement options?

401(k): A 401(k) is a retirement savings plan, sponsored by an employer. Named after the section of tax code that governs them, they were developed to supplement pension funds. It works by letting employees save and invest a portion of their paycheck before taxes are taken off. Taxes are not paid until the money is withdrawn from the account. Some companies will match contributions up to a certain amount. 

Traditional IRA: A traditional Individual Retirement Account (IRA) is a retirement savings plan that provides tax advantages. IRA contributions may be fully or partially tax-deductible and generally, amounts in your traditional IRA, including earnings and gains are taxed when distributed.

Roth IRA: A Roth Individual Retirement Account (IRA) is also a retirement savings account. Unlike a traditional IRA, your contributions to a Roth IRA are not tax-deductible. However, contributions and earnings can grow tax-free, and there’s no tax on your Roth IRA withdrawals in retirement. 

Rollover IRA: A Rollover Individual Retirement Account (IRA) allows for the IRA’s assets to be transferred from an employer-sponsored IRA to a traditional IRA, to continue the tax-deferred status.

SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Account (IRA) plan is available to be used by most small business’ with 100 or fewer employees. The employers can choose to contribute the mandatory 2% or offer an optional matching up to 3%. Employees can contribute a set maximum.

SEP-IRA:  A Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA) is a variation of an IRA which has been adopted by my business owners to provide retirement benefits for both themselves and their employees. They have limited administration costs for self-employed individuals, and if they have employees, all must receive the same benefits under a SEP plan with conditions set on eligibility requirements.

403(b): A 403(b) plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Also known as a tax-sheltered annuity (TSA) plan, Individual accounts can be any of the following: an annuity contract, which is a contract provided through an insurance company, a custodial account, which is an account invested in mutual funds, or Aa retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

529 Plan: A 529 plan is a college savings plan that offers tax and financial aid benefits, such as federal tax-free growth and tax waivers when money is withdrawn for it’s defined purpose. There are two types of 529 plans, college savings plans and prepaid tuition plans with nearly every stat offering at least one. Some private colleges and universities also operate 529 plans. 529 plans may also be used to save and invest for K-12 education costs.


Want to learn more investing terms? We've got you covered. View all of our Investment Club Education Series: Investing Terms here.


Ready to try out your new vocabulary? Start your own investment club with Voleo.

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