My definition of retirement:

A day in the future when I will have the freedom, time and money to do what I would like to do and not what I have to do.

Often times the challenge of retirement is just getting started and making sense of all of the terminology.

I thought this simple post would be a great launching pad for the big topic of retirement because like all decisions, start with knowledge.

Here are 7 frequently used retirement terms:

401(k)

You participate in a 401(k) retirement savings plan by deferring part of your salary into an account set up in your name. Any earnings in the account are federal income tax deferred. If you change jobs, 401(k) plans are portable, which means that you can move your accumulated assets to a new employer’s plan, if the plan allows transfers, or to a rollover IRA. With a traditional 401(k), you defer pretax income, which reduces the income tax you owe in the year you made the contribution. You pay tax on all withdrawals at your regular rate.

403(b)

A 403(b) plan, sometimes known as a tax-sheltered annuity (TSA) or a tax-deferred annuity (TDA), is an employer sponsored retirement savings plan for employees of not-for-profit organizations, such as colleges, hospitals, foundations, and cultural institutions. Some employers offer 403(b) plans as a supplement to — rather than a replacement for — defined benefit pensions. Others offer them as the organization’s only retirement plan. Your contributions to a traditional 403(b) are tax deductible, and any earnings are tax deferred.

Cash value

Cash value is the amount that an account is worth at any given time. For example, the cash value of your 401(k) or IRA is what the account is worth at the end of a period, such as the end of a business day, or at the end of the plan year, often December 31.

Fund family

A fund family, or family of funds, is a group of mutual funds controlled by a single investment company, bank, or other financial institution. The various funds within the family have different investment objectives, such as growth or income. If you invest in several funds in a family, you can transfer assets from one fund to another by phone or online.

Matching contribution

A matching contribution is money your employer adds to your salary reduction retirement savings account, such as a 401(k). It’s usually a percentage of the amount you contribute up to a cap that the employer sets, such as 50% of your contribution up to 5% of your salary. The matching amount and any earnings are tax deferred until you withdraw them from your account. In most plans, employers are not required to match contributions, but may do so if they wish. Employers also determine, within federal guidelines, how long you have to work for the company in order to be fully vested in the matching contributions.

Mutual Fund

A mutual fund is a professionally managed investment product that sells shares to investors and pools the capital it raises to purchase investments. A fund typically buys a diversified portfolio of stock, bonds, and money market securities, or a combination of stock and bonds, depending on the investment objectives of the fund. Mutual funds may also hold other investments.

Tax deferred

A tax-deferred account allows you to postpone income tax that would otherwise be due on employment or investment earnings you hold in the account until some point the future, often when you retire. For example, you can contribute pretax income to employer sponsored retirement plans, such as a 401(k) or 403(b). You owe no tax on any earnings in these plans, or in traditional individual retirement accounts (IRAs), fixed and variable annuities, and some insurance policies until you withdraw the money.

Source: YAHOO Finance

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