Glossary · 25 terms
Retirement Accounts
All retirement accounts terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
401(k)(401k)
A 401(k) is an employer-sponsored, tax-advantaged retirement savings plan that allows employees to contribute a portion of their pre-tax or after-tax salary, with many employers offering a matching contribution.
403(b)(403b)
A 403(b) is a tax-advantaged retirement savings plan available to employees of public schools, non-profit organizations, and certain other tax-exempt entities, functioning similarly to a 401(k) but with a few unique provisions.
457(b)(457b)
A 457(b) is a tax-advantaged deferred compensation retirement plan available to employees of state and local governments and certain non-profit organizations, notable for its unique double contribution rule and no early withdrawal penalty.
72(t) Distribution(SEPP)
A 72(t) distribution is a series of substantially equal periodic payments (SEPPs) from a retirement account that allows individuals under age 59½ to access retirement funds without incurring the 10% early withdrawal penalty, provided the payment schedule is maintained for a defined period.
Backdoor Roth IRA(backdoor Roth)
A backdoor Roth IRA is a legal tax strategy that allows high-income earners who exceed the Roth IRA income limits to fund a Roth IRA indirectly by making a non-deductible Traditional IRA contribution and then converting it to a Roth IRA.
Beneficiary IRA(inherited IRA)
A Beneficiary IRA (also called an Inherited IRA) is an IRA established to receive assets from a deceased person's IRA or employer plan, with distribution rules that differ significantly from those applying to the original account owner.
Catch-Up Contribution(catch-up provision)
A catch-up contribution is an additional amount that individuals aged 50 or older are permitted to contribute to their retirement accounts above the standard annual limit, designed to help those approaching retirement accelerate their savings.
Early Withdrawal Penalty(10% early withdrawal penalty)
The early withdrawal penalty is a 10% federal tax imposed on distributions taken from most retirement accounts before age 59½, in addition to ordinary income tax owed on the distribution amount.
Employer Match(401(k) match)
An employer match is a contribution made by an employer into an employee's retirement account that is tied to the employee's own contributions, effectively providing additional compensation contingent on the employee's participation in the plan.
HSA (Health Savings Account)(HSA)
A Health Savings Account (HSA) is a tax-advantaged account available to individuals enrolled in a high-deductible health plan (HDHP) that can be used to pay for qualified medical expenses, and doubles as a powerful stealth retirement account.
Mega Backdoor Roth(mega backdoor Roth 401(k))
The mega backdoor Roth is an advanced strategy that allows 401(k) participants whose plan permits after-tax contributions and in-service distributions to move up to tens of thousands of additional after-tax dollars into a Roth account each year.
Net Unrealized Appreciation(NUA)
Net Unrealized Appreciation (NUA) is the difference between the cost basis of employer stock held in a 401(k) and its fair market value at the time of distribution, which can be taxed at favorable long-term capital gains rates rather than ordinary income tax rates if specific conditions are met.
Qualified Distribution(qualified Roth distribution)
A qualified distribution is a withdrawal from a Roth IRA or Roth account that meets IRS requirements for being entirely free of federal income tax and the 10% early withdrawal penalty.
Required Minimum Distribution(RMD)
A Required Minimum Distribution (RMD) is the minimum amount the IRS mandates that holders of Traditional IRAs, 401(k)s, and most other pre-tax retirement accounts withdraw annually beginning at a specified age.
Rollover IRA(rollover IRA)
A Rollover IRA is a Traditional IRA that receives assets transferred from an employer-sponsored retirement plan such as a 401(k) or 403(b), typically when an employee leaves a job, allowing the funds to continue growing tax-deferred.
Roth Conversion(IRA conversion)
A Roth conversion is the process of moving funds from a Traditional IRA, 401(k), or other pre-tax retirement account into a Roth IRA, triggering income tax on the converted amount in exchange for future tax-free growth and withdrawals.
Roth IRA(Roth Individual Retirement Account)
A Roth IRA is an individual retirement account funded with after-tax dollars, offering tax-free growth and tax-free qualified withdrawals in retirement, with no required minimum distributions during the owner's lifetime.
Rule of 55(age-55 exception)
The Rule of 55 is an IRS provision that allows employees who separate from service at age 55 or older to take penalty-free distributions from their current employer's 401(k) or 403(b) plan without incurring the standard 10% early withdrawal penalty.
SECURE Act(SECURE Act 2.0)
The SECURE Act (Setting Every Community Up for Retirement Enhancement) is landmark U.S. retirement legislation enacted in 2019 and expanded in 2022 (SECURE Act 2.0) that made sweeping changes to RMD ages, IRA contribution rules, inherited IRA treatment, and automatic enrollment requirements.
SEP IRA(SEP IRA)
A SEP IRA (Simplified Employee Pension IRA) is a retirement plan designed for self-employed individuals and small business owners, allowing contributions of up to 25% of compensation with a much higher dollar ceiling than standard IRAs.
SIMPLE IRA(SIMPLE IRA)
A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement plan for businesses with 100 or fewer employees that allows both employee salary deferrals and mandatory employer contributions, with easier administration than a 401(k).
Social Security(Social Security retirement benefit)
Social Security is a federal insurance program that provides retirement, disability, and survivor benefits to eligible workers and their families, funded through payroll taxes and representing the single largest source of retirement income for most Americans.
Target Date Fund(lifecycle fund)
A target date fund is an all-in-one mutual fund designed for retirement saving that automatically shifts its asset allocation from aggressive to conservative as the investor approaches a selected target retirement year.
Traditional IRA(IRA)
A Traditional IRA is an individual retirement account that allows eligible individuals to make potentially tax-deductible contributions, with investment gains growing tax-deferred until withdrawn in retirement.
Vesting Schedule(cliff vesting)
A vesting schedule is a timeline established by an employer that determines when an employee gains full ownership of employer-contributed retirement benefits, such as matching contributions or profit-sharing allocations.