Glossary

A method of exchanging insurance-related assets without triggering a taxable event. Cash-value life insurance policies and annuity contracts are two products that may qualify for a 1035 exchange.

A loan taken from the assets within a 401(k) account; 401(k) loans charge interest and are normally paid back through payroll deductions. If the borrower leaves an employer before a 401(k) loan has been repaid, the full amount of the loan is generally due. If the borrower fails to repay the loan, it is considered a distribution, and ordinary income taxes may be due along with any applicable tax penalties. Note: under the Tax Cuts and Jobs Act, you don't have to pay taxes or the penalty if you repay the loan by the due date of your tax return for the year that you leave your job (including extensions). For example, if you leave your job in 2020, you'd have until April 15, 2021, to repay the loan.

A 403(b) plan is similar to a 401(k). A 403(b) is a qualified retirement plan available to employees of non-profit and government organizations.

The amount held in an account at the end of a reporting period. For example, a credit card account balance would show the amount owed to a lender as a result of purchases made during a specific period.

A mortgage with an interest rate that is adjusted periodically based on an index. Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages because the lender is able to transfer some of the risk to the borrower; if prevailing rates go higher, the interest rate on a variable mortgage may adjust upward as well.

One figure used in the calculation of income tax liability. AGI is determined by subtracting allowable adjustments from gross income.

A probate-court-appointed person who is tasked with settling an estate for which there is no will.

The return on an investment after subtracting any taxes due.

A mutual fund offered by an investment company that specifically pursues substantial capital gains. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

A method of calculating income tax with a unique set of rules for deductions and exemptions that are more restrictive than those in the traditional tax system. The AMT attempts to ensure that certain high-income taxpayers don't pay a lower effective tax rate than everyone else. To determine whether or not the AMT applies, taxpayers must fill out IRS Form 6251.

The yearly cost of a loan expressed as a percentage of the loan amount. The APR includes interest owed and any fees or additional costs associated with the agreement.

A report required by the Securities and Exchange Commission (SEC) of any company issuing registered stock, that describes a company's management, operations, and financial reports. Annual reports are sent to shareholders, and must also be available for public review.

A contract with an insurance company that guarantees current or future payments in exchange for a premium or series of premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59_, penalties may apply. The guarantees of an annuity contract depend on the issuing company's claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

A formal assessment of a property's value at a specific point in time, performed by a qualified professional.

Anything owned that has a current value that may provide a future benefit.

A method of allocating funds to pursue the highest potential return at a specific level of risk. Asset allocation normally uses sophisticated mathematical analysis of the historical performance of asset classes to attempt to project future risk and return. Asset allocation is an approach to help manage investment risk. It does not guarantee against investment loss.

A specific category of investments that share similar characteristics and tend to behave similarly in the marketplace.

In accounting, the formal examination of a company's financial records by a qualified professional to determine the records' accuracy, consistency, and conformity to legal standards and established accounting principles. In taxes, the formal examination of a tax return by the Internal Revenue Service or other authority to determine its accuracy.

An arrangement under which an institution automatically deposits dividends or capital gains generated by an individual's investment back into the investment to purchase additional shares.

A mutual fund offered by an investment company which attempts to hold a balance of stocks and bonds. Mutual funds are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

A market experiencing an extended period of declining prices. A bear market is the opposite of a bull market.

The person or entity who will receive benefits from a life insurance policy, qualified retirement plan, annuity, trust, or will upon the death of an individual.

The stock of an established company which has a history of generating a profit and possibly a consistent dividend.

A debt instrument under which the issuer promises to pay a specified amount of interest and to repay the principal at maturity. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus his or her original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

The value of a company's assets minus its liabilities, preferred stock, and redeemable preferred stock.

A market experiencing an extended period of rising prices. A bull market is the opposite of a bear market.

An investment strategy that advocates holding securities for the long term and ignoring short-term price fluctuations in the market.

A legal contract that provides for the purchase of all outstanding shares from a business owner who wishes to sell, wants to terminate involvement, is permanently disabled, or has died. Buy-sell agreements are often funded with life insurance.

The difference between the price at which an asset was purchased and the price for which it was sold. When the sale price is higher than the purchase price, the difference is a capital gain; when the sale price is lower than the purchase price, the difference is a capital loss.

Assets that are most easily converted into cash and which have a very low risk of price fluctuation. For example, money market funds may be considered a cash alternative. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.