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PF Ch 3 Savings
Terms from Unit 1 Chapter 3
Term | Definition |
---|---|
401(k) | defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes; in some cases, employers will match their contributions. |
Educational Savings Account (ESA) | after-tax college fund that grows tax-free for educational uses; eligibility based on parents’ annual income. |
Individual retirement Arrangement (IRA) | tax-deferred arrangement for individuals with earned income and their non-income-producing spouses; growth is not taxed until money is withdrawn; contributions to an IRA are often tax-deductible. |
Pre-Tax Retirement Plan | a type of retirement plan where you put money in before taxes have been taken out, but must pay taxes on the money at the time of withdrawal |
Rollover | movement of funds from a tax-deferred retirement plan from one qualified plan or custodian to another; incurs no immediate tax liabilities or penalties, but requires IRS reporting |
Roth IRA | retirement account funded with after-tax dollars that subsequently grows tax free |
Tax-Favored Dollars | Money that is working for you, either tax-deferred or tax-free, within a retirement plan. |