401k

401k Glossary

10% Penalty(Noun)

/ten per-sent pen-uhl-tee/

Definition: A tax penalty imposed by the IRS on early withdrawals from a 401(k) or other retirement accounts before the age of 59½, in addition to regular income taxes, unless an exception applies.

Etymology: "Penalty" from Latin "poena," meaning "punishment." The 10% penalty deters premature withdrawals from retirement accounts.

Similar: Early withdrawal penalty, Tax penalty

Opposite: Penalty-free withdrawal

Example: "Withdrawing from your 401(k) before age 59½ usually incurs a 10% penalty on top of regular income taxes."

401(k) Calculator(Noun)

/fawr-oh-wuhn-kay kal-kyuh-ley-ter/

Definition: An online tool that helps individuals estimate their 401(k) balance at retirement based on factors like contribution rate, employer match, investment returns, and time until retirement.

Etymology: "Calculator" from Latin "calculare," meaning "to count." A 401(k) calculator helps plan retirement savings growth.

Similar: Retirement savings calculator, 401(k) estimator

Example: "Using a 401(k) calculator can help you determine how much you need to contribute to reach your retirement goals."

401(k) Match Formula(Noun)

/fawr-oh-wuhn-kay mach fawr-myuh-luh/

Definition: The specific criteria set by an employer to determine how much they will contribute to an employee’s 401(k) plan, typically expressed as a percentage of the employee's contributions up to a certain limit.

Etymology: "Match" from Old English "mǣt," meaning "to agree with," and "formula" from Latin "formula," meaning "form or rule." The 401(k) match formula dictates employer contributions to the plan.

Similar: Matching contribution formula, Employer match criteria

Opposite: Non-matching plan

Example: "Understanding your company's 401(k) match formula can help you maximize your retirement savings."

Account Balance(Noun)

/uh-kount bal-uhns/

Definition: The total amount of money in an individual's 401(k) account, including contributions, employer matches, investment earnings, and any fees or withdrawals.

Etymology: "Account" from Old French "aconter," meaning "to reckon or compute," and "balance" from Latin "bilancia," meaning "scale for weighing." Account balance reflects the current value of a retirement account.

Similar: Retirement balance, 401(k) balance

Opposite: Account deficit

Example: "Regularly checking your 401(k) account balance is important to ensure you're on track for retirement."

Administrative Costs(Noun)

/ad-min-uh-strey-tiv kosts/

Definition: Fees associated with managing and maintaining a 401(k) plan, including costs for record-keeping, compliance, and other plan services, typically passed on to participants or covered by the employer.

Etymology: "Administrative" from Latin "administrare," meaning "to manage," and "costs" from Old French "coste," meaning "price." Administrative costs are expenses related to the operation of a 401(k) plan.

Similar: Plan fees, Management costs

Opposite: Fee-free

Example: "Understanding the administrative costs of your 401(k) plan can help you manage the overall impact on your retirement savings."

Age 73 Rule(Noun)

/eyj sev-uhn-tee-three rool/

Definition: The IRS rule requiring individuals to begin taking Required Minimum Distributions (RMDs) from their 401(k) and other retirement accounts by April 1 of the year following the year they turn 73.

Etymology: "Age" from Old French "aage," meaning "period of life," and "rule" from Latin "regula," meaning "straight stick." The Age 73 Rule mandates when distributions must start from retirement accounts.

Similar: RMD rule, Required distribution age

Opposite: No required distribution

Example: "The Age 73 Rule means you'll need to start withdrawing from your 401(k) to avoid penalties."

Annual Fee(Noun)

/an-yoo-uhl fee/

Definition: A recurring yearly charge for managing a 401(k) plan, which may cover administration, record-keeping, investment management, and other services provided by the plan.

Etymology: "Annual" from Latin "annualis," meaning "yearly," and "fee" from Old English "feoh," meaning "money." Annual fees are charged regularly for maintaining a retirement plan.

Similar: Yearly fee, Maintenance fee

Opposite: No fee

Example: "Reviewing the annual fee of your 401(k) plan is important to understand the cost of managing your investments."

Automatic Contribution Increase(Noun)

/aw-tuh-mat-ik kon-truh-byoo-shuhn in-krees/

Definition: A feature of some 401(k) plans that automatically increases an employee's contribution rate periodically, often annually, to help them gradually save more for retirement without needing to manually adjust their contributions.

Etymology: "Automatic" from Greek "automatos," meaning "self-moving," and "contribution" from Latin "contribuere," meaning "to bring together." This feature helps employees save more over time.

Similar: Auto-increase, Contribution escalator

Opposite: Static contribution

Example: "An automatic contribution increase can help you save more for retirement with minimal effort."

Automatic Enrollment(Noun)

/aw-tuh-mat-ik en-rohl-muhnt/

Definition: A feature in some 401(k) plans that automatically enrolls eligible employees in the retirement plan at a predetermined contribution rate unless they opt out, helping to increase participation and savings rates.

Etymology: "Automatic" from Greek "automatos," meaning "self-moving," and "enrollment" from Old French "enroller," meaning "to enter on a list." Automatic enrollment simplifies joining a retirement plan.

Similar: Auto-enrollment, Default enrollment

Opposite: Voluntary enrollment

Example: "Automatic enrollment ensures that more employees start saving for retirement as soon as they are eligible."

Beneficiary Payout(Noun)

/ben-uh-fish-ee-er-ee pey-out/

Definition: The distribution of a 401(k) account balance to the designated beneficiary or beneficiaries upon the account holder's death, which may be subject to specific tax and distribution rules.

Etymology: "Beneficiary" from Latin "beneficium," meaning "a favor or benefit," and "payout" from Old English "paegan," meaning "to appease." Beneficiary payout refers to the disbursement of funds to heirs.

Similar: Inheritance payout, Death benefit distribution

Example: "It's important to update your beneficiary designation to ensure the correct person receives the payout from your 401(k)."

Bond Fund(Noun)

/bond fuhnd/

Definition: A type of mutual fund or ETF that invests primarily in bonds or other debt securities, offering more stable returns than stock funds and often used in retirement portfolios to provide income and reduce risk.

Etymology: "Bond" from Old French "bond," meaning "a binding agreement," and "fund" from Old French "fons," meaning "bottom or base." Bond funds provide income through interest payments from bonds.

Similar: Fixed-income fund, Debt fund

Opposite: Stock fund

Example: "Incorporating a bond fund into your 401(k) can help balance risk in your retirement portfolio."

Contribution Matching(Noun)

/kon-truh-byoo-shuhn mach-ing/

Definition: The process by which an employer contributes additional funds to an employee's 401(k) account, matching the employee's contributions up to a certain percentage or amount, incentivizing participation and savings.

Etymology: "Contribution" from Latin "contribuere," meaning "to bring together," and "matching" from Old English "mǣt," meaning "to agree with." Contribution matching boosts retirement savings with employer contributions.

Similar: Employer match, Matching contribution

Opposite: Non-matching plan

Example: "Taking full advantage of contribution matching is essential to maximizing your retirement savings."

Contribution Percentage(Noun)

/kon-truh-byoo-shuhn per-sen-tij/

Definition: The portion of an employee's salary that is contributed to their 401(k) plan, often expressed as a percentage, which can be set by the employee and may be subject to limits set by the plan or IRS.

Etymology: "Contribution" from Latin "contribuere," meaning "to bring together," and "percentage" from Latin "per centum," meaning "by the hundred." Contribution percentage determines how much of your salary is saved.

Similar: Contribution rate, Salary percentage

Opposite: Fixed contribution

Example: "Increasing your contribution percentage over time can help you build a larger retirement nest egg."

Contribution Rate(Noun)

/kon-truh-byoo-shuhn reyt/

Definition: The rate at which an employee contributes a portion of their salary to their 401(k) plan, often expressed as a percentage or fixed dollar amount, which can be adjusted to meet retirement goals.

Etymology: "Contribution" from Latin "contribuere," meaning "to bring together," and "rate" from Old French "rate," meaning "estimated value." Contribution rate affects the growth of retirement savings.

Similar: Contribution level, Contribution percentage

Opposite: Fixed rate (in different context)

Example: "Your contribution rate directly influences how quickly your 401(k) savings grow."

Custodian(Noun)

/kuh-stoh-dee-uhn/

Definition: A financial institution or entity responsible for holding and safeguarding the assets in a 401(k) plan, ensuring they are managed according to legal and regulatory requirements.

Etymology: "Custodian" from Latin "custodia," meaning "guard or keeping." A custodian ensures the security and proper management of 401(k) assets.

Similar: Trustee, Asset manager

Example: "The custodian of your 401(k) plan plays a crucial role in managing and protecting your retirement assets."

Deferral Limit(Noun)

/dih-fur-uhl lim-it/

Definition: The maximum amount of an employee’s pre-tax salary that can be contributed to a 401(k) plan each year, as set by the IRS, which is adjusted annually for inflation.

Etymology: "Deferral" from Latin "differre," meaning "to postpone," and "limit" from Latin "limitem," meaning "boundary." The deferral limit caps how much can be saved tax-deferred in a 401(k).

Similar: Contribution limit, Maximum deferral

Opposite: No limit

Example: "Staying within the deferral limit ensures you maximize your 401(k) contributions without exceeding IRS rules."

Deferred Compensation(Noun)

/dih-furd kom-puhn-sey-shuhn/

Definition: Income that is earned by an employee but paid out at a later date, typically through retirement plans like a 401(k), allowing the employee to defer taxes until the money is withdrawn in retirement.

Etymology: "Deferred" from Latin "differre," meaning "to postpone," and "compensation" from Latin "compensare," meaning "to weigh one thing against another." Deferred compensation is income saved for future use.

Similar: Delayed compensation, Postponed earnings

Opposite: Immediate compensation

Example: "Deferred compensation allows you to save more for retirement and defer taxes until you withdraw the funds."

Direct Rollover(Noun)

/dih-rekt roh-loh-ver/

Definition: The process of moving funds directly from one retirement account, such as a 401(k), to another, such as an IRA, without the funds being paid to the account holder, which avoids tax penalties.

Etymology: "Direct" from Latin "directus," meaning "straight," and "rollover" from Old English "roþ," meaning "to roll" and "off." Direct rollovers transfer funds between retirement accounts tax-free.

Similar: Trustee-to-trustee transfer, Direct transfer

Opposite: Indirect rollover

Example: "A direct rollover is the best way to move your 401(k) funds to an IRA without triggering taxes."

Distribution Rules(Noun)

/dis-truh-byoo-shuhn roolz/

Definition: The regulations governing how and when participants can withdraw funds from their 401(k) accounts, including age requirements, penalties for early withdrawals, and required minimum distributions (RMDs).

Etymology: "Distribution" from Latin "distributio," meaning "a division," and "rules" from Old English "regula," meaning "straight stick." Distribution rules define the terms for accessing 401(k) funds.

Similar: Withdrawal rules, Payout guidelines

Opposite: No rules

Example: "It's important to understand the distribution rules of your 401(k) to avoid penalties and taxes."

Early Distribution(Noun)

/ur-lee dis-truh-byoo-shuhn/

Definition: A withdrawal from a 401(k) or other retirement accounts before the age of 59½, which may be subject to income taxes and a 10% early withdrawal penalty unless an exception applies.

Etymology: "Early" from Old English "ærlice," meaning "soon," and "distribution" from Latin "distributio," meaning "a division." Early distributions can incur penalties and taxes if taken before retirement age.

Similar: Premature withdrawal, Early withdrawal

Opposite: Qualified distribution

Example: "Taking an early distribution from your 401(k) can result in significant tax penalties unless you qualify for an exception."

Elective Contribution(Noun)

/ih-lek-tiv kon-truh-byoo-shuhn/

Definition: The portion of an employee's salary that they choose to contribute to a 401(k) plan, typically on a pre-tax basis, reducing their taxable income while saving for retirement.

Etymology: "Elective" from Latin "electivus," meaning "chosen," and "contribution" from Latin "contribuere," meaning "to bring together." Elective contributions are voluntary savings put into a 401(k) plan.

Similar: Voluntary contribution, Employee contribution

Opposite: Mandatory contribution

Example: "Increasing your elective contributions to your 401(k) can help you build a larger retirement fund while reducing your current taxable income."

Elective Deferrals(Noun)

/ih-lek-tiv dih-fur-uhlz/

Definition: Contributions made by an employee to a 401(k) plan that are deducted from their salary before taxes, allowing the income to be deferred until it is withdrawn in retirement.

Etymology: "Elective" from Latin "electivus," meaning "chosen," and "deferrals" from Latin "differre," meaning "to postpone." Elective deferrals delay income taxation until retirement.

Similar: Pre-tax contributions, Salary deferrals

Opposite: After-tax contributions

Example: "Elective deferrals to your 401(k) allow you to save for retirement while lowering your taxable income."

Employer-Sponsored Plan(Noun)

/em-ploi-er spon-serd plan/

Definition: A retirement savings plan, such as a 401(k), that is established and managed by an employer, offering employees the opportunity to save and invest for retirement, often with employer contributions.

Etymology: "Employer" from Old French "employeur," meaning "one who uses or employs," and "plan" from Latin "planus," meaning "flat or level." Employer-sponsored plans provide structured retirement savings options.

Similar: Company retirement plan, Workplace retirement plan

Opposite: Self-directed plan

Example: "Participating in an employer-sponsored plan like a 401(k) is a key step in securing your financial future."

Fiduciary Responsibility(Noun)

/fi-doo-shee-er-ee ree-spon-suh-bil-i-tee/

Definition: The legal obligation of the plan administrators and other parties managing a 401(k) plan to act in the best interests of the participants, ensuring that the plan is managed prudently and for the benefit of the employees.

Etymology: "Fiduciary" from Latin "fiducia," meaning "trust," and "responsibility" from Latin "respondere," meaning "to answer." Fiduciary responsibility requires acting in the participants' best interests.

Similar: Fiduciary duty, Trust responsibility

Opposite: Self-interest (in this context)

Example: "Plan administrators must adhere to their fiduciary responsibility to ensure the 401(k) is managed in the best interests of the employees."

Financial Hardship(Noun)

/fi-nan-shuhl hahrd-ship/

Definition: A situation where an individual faces significant financial difficulty, allowing them to make a penalty-free withdrawal from their 401(k) under certain circumstances, such as medical expenses or preventing eviction.

Etymology: "Financial" from Old French "finer," meaning "to end or settle," and "hardship" from Old English "heardscipe," meaning "difficulty." Financial hardship can qualify an individual for early 401(k) withdrawals without penalty.

Similar: Economic difficulty, Financial distress

Opposite: Financial stability

Example: "A financial hardship withdrawal from your 401(k) can provide relief in times of severe economic difficulty."

Financial Wellness(Noun)

/fi-nan-shuhl wel-nis/

Definition: The state of having a healthy financial situation, including managing debts, saving for retirement, and being prepared for emergencies, which is often supported by employer programs like 401(k) plans.

Etymology: "Financial" from Old French "finer," meaning "to end or settle," and "wellness" from Old English "wel," meaning "in a satisfactory state." Financial wellness encompasses overall financial health and stability.

Similar: Financial health, Financial security

Opposite: Financial distress

Example: "Achieving financial wellness involves balancing saving, spending, and investing to meet both short-term needs and long-term goals."

Fund Options(Noun)

/fuhnd op-shuhnz/

Definition: The various investment choices available within a 401(k) plan, typically including a selection of mutual funds, index funds, bond funds, and sometimes company stock, allowing participants to diversify their portfolios.

Etymology: "Fund" from Old French "fons," meaning "bottom or base," and "options" from Latin "optio," meaning "choice." Fund options in a 401(k) provide different investment vehicles for participants.

Similar: Investment options, Portfolio choices

Opposite: Limited options

Example: "Reviewing your fund options regularly can help you adjust your 401(k) investments according to your retirement goals."

Hardship Criteria(Noun)

/hahrd-ship krahy-teer-ee-uh/

Definition: The specific conditions that must be met for a 401(k) plan participant to qualify for a hardship withdrawal, typically including severe financial needs such as medical expenses, tuition, or avoiding foreclosure.

Etymology: "Hardship" from Old English "heardscipe," meaning "difficulty," and "criteria" from Greek "kriterion," meaning "a means for judging." Hardship criteria determine eligibility for early withdrawals.

Similar: Withdrawal conditions, Eligibility requirements

Opposite: No restrictions

Example: "Meeting the hardship criteria is necessary to access your 401(k) funds before retirement without penalties."

Hardship Withdrawal(Noun)

/hahrd-ship with-draw-uhl/

Definition: A type of withdrawal from a 401(k) plan allowed under specific circumstances of financial hardship, such as to cover medical expenses or avoid foreclosure, often subject to income taxes and potentially penalties.

Etymology: "Hardship" from Old English "heardscipe," meaning "difficulty," and "withdrawal" from Old English "wiðdragan," meaning "to draw back." A hardship withdrawal allows early access to retirement funds under specific conditions.

Similar: Emergency withdrawal, Financial distress withdrawal

Opposite: Qualified distribution

Example: "A hardship withdrawal from your 401(k) can provide financial relief, but it should be considered carefully due to potential taxes and penalties."

Highly Compensated Employee (HCE)(Noun)

/hahy-lee kom-puhn-sey-tid em-ploy-ee/

Definition: An employee who earns above a certain income threshold or owns more than 5% of the business, subject to specific 401(k) contribution limits and non-discrimination testing to ensure fairness in retirement benefits.

Etymology: "Highly" from Old English "heah," meaning "elevated," "compensated" from Latin "compensare," meaning "to weigh one thing against another," and "employee" from Old French "employe," meaning "one who is used." HCE status affects contribution limits and plan testing.

Similar: Key employee, High earner

Opposite: Non-highly compensated employee (NHCE)

Example: "As a Highly Compensated Employee, your 401(k) contributions may be limited by non-discrimination rules."

Index Fund(Noun)

/in-deks fuhnd/

Definition: A type of mutual fund or ETF that tracks the performance of a specific market index, such as the S&P 500, providing diversified exposure to the market with typically lower fees than actively managed funds.

Etymology: "Index" from Latin "index," meaning "forefinger or pointer," and "fund" from Old French "fons," meaning "bottom or base." Index funds passively replicate the performance of a market index.

Similar: Passive fund, Market-tracking fund

Opposite: Actively managed fund

Example: "Index funds are a popular choice in 401(k) plans for their low fees and broad market exposure."

Indirect Rollover(Noun)

/in-duh-rekt roh-loh-ver/

Definition: A method of moving funds from a 401(k) to another retirement account where the account holder receives the distribution first and then has 60 days to deposit it into the new account, potentially subject to withholding taxes if not completed within the timeframe.

Etymology: "Indirect" from Latin "indirectus," meaning "not straight," and "rollover" from Old English "roþ," meaning "to roll" and "off." An indirect rollover involves temporarily receiving the funds before transferring them to another account.

Similar: Temporary rollover, 60-day rollover

Opposite: Direct rollover

Example: "An indirect rollover gives you 60 days to deposit the funds into another retirement account, but failing to do so may result in taxes and penalties."

Investment Growth(Noun)

/in-vest-muhnt grohth/

Definition: The increase in value of an investment over time due to capital appreciation, interest, dividends, or other forms of return, crucial for building a sufficient retirement nest egg in a 401(k) plan.

Etymology: "Investment" from Latin "investire," meaning "to clothe," and "growth" from Old English "growan," meaning "to grow." Investment growth measures the increase in value of assets over time.

Similar: Capital growth, Investment appreciation

Opposite: Investment loss

Example: "Monitoring your 401(k) investment growth is important to ensure you're on track to meet your retirement goals."

Investment Options(Noun)

/in-vest-muhnt op-shuhnz/

Definition: The variety of assets or funds available within a 401(k) plan, such as stocks, bonds, mutual funds, and ETFs, allowing participants to choose investments that match their risk tolerance and retirement objectives.

Etymology: "Investment" from Latin "investire," meaning "to clothe," and "options" from Latin "optio," meaning "choice." Investment options in a 401(k) provide different avenues for growing retirement savings.

Similar: Fund options, Investment choices

Opposite: Limited options

Example: "Selecting the right investment options in your 401(k) can significantly impact your retirement savings over time."

Loan Provision(Noun)

/lohn proh-vizh-uhn/

Definition: A feature in some 401(k) plans that allows participants to borrow money from their retirement savings, usually with the requirement to repay the loan with interest within a set period, avoiding early withdrawal penalties.

Etymology: "Loan" from Old Norse "lán," meaning "something lent," and "provision" from Latin "provisio," meaning "a providing beforehand." Loan provisions allow access to 401(k) funds as a loan rather than a withdrawal.

Similar: Loan feature, 401(k) loan

Opposite: Withdrawal provision

Example: "The loan provision in your 401(k) plan allows you to borrow against your retirement savings without incurring penalties."

Managed Account(Noun)

/man-ijd uh-kount/

Definition: A 401(k) investment option where professional managers handle the selection and monitoring of investments within the account, tailoring the portfolio to the participant’s risk tolerance and retirement goals.

Etymology: "Managed" from Old French "menager," meaning "to control," and "account" from Old French "aconter," meaning "to reckon or compute." A managed account offers professional oversight of retirement investments.

Similar: Professionally managed account, Advisory account

Opposite: Self-directed account

Example: "A managed account can provide peace of mind by leaving your 401(k) investment decisions to professionals."

Maximum Contribution(Noun)

/mak-suh-muhm kon-truh-byoo-shuhn/

Definition: The highest amount an employee can contribute to their 401(k) plan in a given year, as determined by IRS rules, which may include catch-up contributions for individuals aged 50 or older.

Etymology: "Maximum" from Latin "maximus," meaning "greatest," and "contribution" from Latin "contribuere," meaning "to bring together." Maximum contribution limits set the upper bound on 401(k) savings per year.

Similar: Contribution cap, Annual limit

Opposite: Minimum contribution

Example: "Contributing up to the maximum contribution limit each year can significantly boost your retirement savings."

Non-Discrimination Testing(Noun)

/non-di-skrim-uh-ney-shuhn tes-ting/

Definition: IRS-required tests that 401(k) plans must pass annually to ensure that they do not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs), promoting fairness in retirement benefits.

Etymology: "Non-discrimination" from Latin "non," meaning "not," and "discriminare," meaning "to divide," and "testing" from Old English "testan," meaning "to examine." Non-discrimination testing ensures equity in retirement plans.

Similar: Compliance testing, Fairness testing

Opposite: Discriminatory practice

Example: "Non-discrimination testing helps ensure that 401(k) plans benefit all employees equally, not just the highly compensated."

Participant(Noun)

/pahr-tis-uh-puhnt/

Definition: An employee who is enrolled in a 401(k) plan and actively contributing or benefiting from employer contributions, including those who may no longer be contributing but still have a vested balance in the plan.

Etymology: "Participant" from Latin "participare," meaning "to share in." A participant in a 401(k) plan is an active or vested member of the retirement savings program.

Similar: Plan member, Enrolled employee

Opposite: Non-participant

Example: "As a 401(k) participant, you should regularly review your investment choices to align with your retirement goals."

Participant Education(Noun)

/pahr-tis-uh-puhnt ej-oo-key-shuhn/

Definition: Programs or resources provided by employers or plan administrators to help 401(k) participants understand their retirement plan options, investment choices, and strategies for maximizing their retirement savings.

Etymology: "Participant" from Latin "participare," meaning "to share in," and "education" from Latin "educare," meaning "to lead out." Participant education empowers employees to make informed decisions about their 401(k).

Similar: Retirement education, Plan participant guidance

Opposite: Participant neglect

Example: "Participant education is key to ensuring employees make the most of their 401(k) plans."

Participant Loan(Noun)

/pahr-tis-uh-puhnt lohn/

Definition: A loan taken by a 401(k) participant from their retirement account, subject to plan rules, with the requirement to repay the loan with interest within a specified period to avoid taxes and penalties.

Etymology: "Participant" from Latin "participare," meaning "to share in," and "loan" from Old Norse "lán," meaning "something lent." A participant loan allows borrowing against retirement savings under certain conditions.

Similar: 401(k) loan, Retirement loan

Opposite: Hardship withdrawal (in some contexts)

Example: "Taking a participant loan from your 401(k) requires careful consideration, as it must be repaid to avoid taxes and penalties."

Plan Administrator(Noun)

/plan ad-min-uh-strey-ter/

Definition: The entity or individual responsible for managing the day-to-day operations of a 401(k) plan, including compliance, record-keeping, and ensuring that the plan operates in accordance with federal regulations.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "administrator" from Latin "administrare," meaning "to manage." The plan administrator oversees the proper functioning of the retirement plan.

Similar: Plan manager, Plan fiduciary

Opposite: Participant (in this context)

Example: "The plan administrator ensures that the 401(k) plan is compliant with all IRS and Department of Labor regulations."

Plan Amendment(Noun)

/plan uh-mend-muhnt/

Definition: A formal change or update to the terms of a 401(k) plan, which may involve adjustments to contribution limits, investment options, or eligibility requirements, often requiring approval from the plan sponsor and compliance with legal standards.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "amendment" from Latin "emendare," meaning "to correct or improve." A plan amendment modifies the provisions of a 401(k) plan.

Similar: Plan modification, Plan change

Opposite: Plan stability

Example: "Plan amendments must be communicated to all participants to ensure they understand any changes to their 401(k) benefits."

Plan Audit(Noun)

/plan aw-dit/

Definition: A formal examination of a 401(k) plan’s financial statements and operations by an independent auditor to ensure compliance with regulatory requirements and the accuracy of financial records.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "audit" from Latin "auditus," meaning "a hearing." A plan audit verifies the integrity and compliance of the 401(k) plan.

Similar: Compliance audit, Financial audit

Opposite: Plan neglect

Example: "A plan audit is essential for maintaining the integrity and legal compliance of a 401(k) plan."

Plan Contributions(Noun)

/plan kon-truh-byoo-shuhnz/

Definition: The funds that are added to a 401(k) plan, either by the employee (elective contributions) or the employer (matching or non-elective contributions), which accumulate to build the employee’s retirement savings.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "contributions" from Latin "contribuere," meaning "to bring together." Plan contributions are the primary source of growth in a 401(k) account.

Similar: Retirement contributions, 401(k) deposits

Opposite: Withdrawals

Example: "Maximizing your plan contributions is key to building a strong retirement savings."

Plan Conversion(Noun)

/plan kuhn-vur-zhuhn/

Definition: The process of changing a 401(k) plan from one type to another, such as from a traditional 401(k) to a Roth 401(k), which may involve tax implications and changes in plan administration.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "conversion" from Latin "conversionem," meaning "a turning around." Plan conversion changes the type or structure of a 401(k) plan.

Similar: Plan change, Plan restructuring

Opposite: Plan continuation

Example: "A plan conversion to a Roth 401(k) can provide tax-free withdrawals in retirement, but it may result in immediate tax liabilities."

Plan Document(Noun)

/plan dok-yuh-muhnt/

Definition: The legal document that outlines the rules, regulations, and procedures of a 401(k) plan, including eligibility requirements, contribution limits, and distribution rules, which must be adhered to by both the employer and participants.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "document" from Latin "documentum," meaning "a lesson or proof." The plan document governs the operation of a 401(k) plan.

Similar: Plan agreement, Legal document

Opposite: Informal plan

Example: "The plan document is essential for understanding the specific rules and benefits of your 401(k) plan."

Plan Enrollment(Noun)

/plan en-rohl-muhnt/

Definition: The process by which eligible employees sign up to participate in a 401(k) plan, selecting their contribution rate and investment options, often facilitated by the employer during an open enrollment period.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "enrollment" from Old French "enroller," meaning "to enter on a list." Plan enrollment is the initial step to participating in a 401(k) plan.

Similar: Plan registration, Plan sign-up

Opposite: Plan exit

Example: "Completing your plan enrollment as soon as you're eligible can help you start building your retirement savings early."

Plan Fees(Noun)

/plan feez/

Definition: The various costs associated with administering a 401(k) plan, including investment management fees, administrative fees, and service fees, which may be paid by the employer, the participants, or both.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "fees" from Old English "feoh," meaning "money." Plan fees are charges associated with maintaining and managing a 401(k) plan.

Similar: Administrative costs, Management fees

Opposite: Fee-free

Example: "Understanding your 401(k) plan fees is important because they can significantly impact your overall retirement savings over time."

Plan Participation(Noun)

/plan pahr-tis-uh-pey-shuhn/

Definition: The involvement of eligible employees in a 401(k) plan, including making contributions, selecting investments, and potentially receiving employer matches, which contributes to building retirement savings.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "participation" from Latin "participare," meaning "to share in." Plan participation refers to employees' active involvement in their 401(k) plan.

Similar: Plan engagement, Plan involvement

Opposite: Non-participation

Example: "High plan participation rates are a sign that employees are taking an active role in preparing for retirement."

Plan Portability(Noun)

/plan pawr-tuh-bil-i-tee/

Definition: The ability of an employee to transfer their 401(k) account balance from one employer’s plan to another employer’s plan or to an IRA when changing jobs, ensuring that retirement savings continue to grow.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "portability" from Latin "portare," meaning "to carry." Plan portability allows employees to maintain and consolidate their retirement savings across jobs.

Similar: Plan transferability, Plan mobility

Opposite: Plan lock-in

Example: "Plan portability is a key feature that allows you to take your retirement savings with you when you change jobs."

Plan Sponsor(Noun)

/plan spon-ser/

Definition: The employer or organization that establishes and maintains a 401(k) plan for its employees, responsible for plan administration, compliance, and ensuring that the plan operates in the best interest of the participants.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "sponsor" from Latin "spondere," meaning "to pledge." The plan sponsor is the entity that provides and oversees the 401(k) plan.

Similar: Plan provider, Employer

Opposite: Participant

Example: "The plan sponsor is responsible for selecting the investment options available in the 401(k) plan."

Plan Termination(Noun)

/plan tur-muh-ney-shuhn/

Definition: The process of ending a 401(k) plan by the employer, often involving the distribution of assets to participants or the transfer of accounts to an IRA or another qualified plan, subject to regulatory requirements.

Etymology: "Plan" from Latin "planus," meaning "flat or level," and "termination" from Latin "terminare," meaning "to end." Plan termination discontinues the operation of a 401(k) plan.

Similar: Plan closure, Plan discontinuation

Opposite: Plan continuation

Example: "Plan termination requires careful planning to ensure that all assets are properly distributed or rolled over to other retirement accounts."

Post-Retirement Distribution(Noun)

/pohst-ri-tahyuh r-muhnt dis-truh-byoo-shuhn/

Definition: The withdrawal of funds from a 401(k) plan after the participant has retired, typically subject to income taxes but not the 10% early withdrawal penalty, used to provide income during retirement.

Etymology: "Post" from Latin "post," meaning "after," "retirement" from French "retirer," meaning "to withdraw," and "distribution" from Latin "distributio," meaning "a division." Post-retirement distributions provide income during retirement.

Similar: Retirement withdrawals, Retirement distributions

Opposite: Pre-retirement distribution

Example: "Managing your post-retirement distributions carefully can help ensure that your savings last throughout your retirement."

Pre-Tax Contributions(Noun)

/: pree-taks kon-truh-byoo-shuhnz/

Definition: Contributions made to a 401(k) plan from an employee’s salary before taxes are deducted, reducing the employee’s taxable income and allowing the contributions to grow tax-deferred until withdrawal.

Etymology: "Pre" from Latin "prae," meaning "before," "tax" from Latin "taxare," meaning "to assess," and "contributions" from Latin "contribuere," meaning "to bring together." Pre-tax contributions reduce current taxable income.

Similar: Tax-deferred contributions, Pre-tax savings

Opposite: After-tax contributions

Example: "Making pre-tax contributions to your 401(k) can lower your taxable income and help your savings grow faster."

Pre-Tax Savings(Noun)

/: pree-taks sey-vingz/

Definition: Savings accumulated in a 401(k) plan or other retirement accounts where contributions are made before taxes, allowing the balance to grow tax-deferred until funds are withdrawn in retirement.

Etymology: "Pre" from Latin "prae," meaning "before," "tax" from Latin "taxare," meaning "to assess," and "savings" from Old French "saver," meaning "to save." Pre-tax savings accumulate without immediate tax obligations.

Similar: Tax-deferred savings, Pre-tax contributions

Opposite: After-tax savings

Example: "Building up pre-tax savings in your 401(k) can provide a significant advantage by reducing your taxable income now and deferring taxes until retirement."

Profit Sharing(Noun)

/: proh-fit shair-ing/

Definition: A plan in which an employer shares a portion of its profits with employees by contributing to their 401(k) accounts, often used as an incentive to align employees' interests with the company's success.

Etymology: "Profit" from Latin "proficere," meaning "to advance," and "sharing" from Old English "scearu," meaning "division." Profit sharing allows employees to benefit from the company's financial success.

Similar: Profit contribution, Incentive plan

Opposite: Fixed contribution

Example: "Profit sharing can boost your 401(k) balance and provide additional motivation to contribute to the company's success."

Qualified Distribution(Noun)

/: kwol-uh-fahyd dis-truh-byoo-shuhn/

Definition: A withdrawal from a 401(k) plan or other retirement account that meets IRS criteria, such as being made after reaching retirement age, that is not subject to the 10% early withdrawal penalty.

Etymology: "Qualified" from Latin "qualificare," meaning "to make of a certain quality," and "distribution" from Latin "distributio," meaning "a division." Qualified distributions meet criteria for penalty-free withdrawal.

Similar: Eligible withdrawal, Penalty-free withdrawal

Opposite: Non-qualified distribution

Example: "Qualified distributions from your 401(k) can provide tax-advantaged income during retirement."

Qualified Plan(Noun)

/: kwol-uh-fahyd plan/

Definition: A retirement plan that meets IRS requirements and qualifies for tax benefits, such as tax-deferred growth and employer contributions, including 401(k) plans and pension plans.

Etymology: "Qualified" from Latin "qualificare," meaning "to make of a certain quality," and "plan" from Latin "planus," meaning "flat or level." Qualified plans offer tax advantages for retirement savings.

Similar: IRS-approved plan, Tax-qualified plan

Opposite: Non-qualified plan

Example: "Contributing to a qualified plan like a 401(k) offers tax benefits that can enhance your retirement savings."

Qualified Pre-Retirement Survivor Annuity (QPSA)(Noun)

/: kwol-uh-fahyd pree-ri-tahyuh r-muhnt ser-vahy-ver uh-noo-i-tee/

Definition: A feature in certain 401(k) plans that provides a surviving spouse with an annuity if the participant dies before retiring, ensuring that the spouse receives a steady income based on the participant's account balance.

Etymology: "Qualified" from Latin "qualificare," meaning "to make of a certain quality," "pre-retirement" from Latin "prae," meaning "before," "survivor" from Old French "survivre," meaning "to outlive," and "annuity" from Latin "annuus," meaning "yearly." QPSA protects a spouse's financial security.

Similar: Survivor annuity, Pre-retirement benefit

Opposite: Lump-sum distribution

Example: "A Qualified Pre-Retirement Survivor Annuity (QPSA) can provide your spouse with financial stability if you pass away before retiring."

Required Distribution(Noun)

/: ri-kwahyuh rd dis-truh-byoo-shuhn/

Definition: The mandatory withdrawal of a specific amount from a 401(k) or other retirement account once the participant reaches a certain age, as required by IRS rules to ensure that the funds are eventually taxed.

Etymology: "Required" from Latin "requirere," meaning "to seek or demand," and "distribution" from Latin "distributio," meaning "a division." Required distributions ensure that retirement funds are withdrawn and taxed.

Similar: Mandatory distribution, Compulsory withdrawal

Opposite: Optional distribution

Example: "Failing to take the required distribution from your 401(k) can result in substantial IRS penalties."

Required Minimum Distributions (RMDs)(Noun)

/: ri-kwahyuh rd min-uh-muhm dis-truh-byoo-shuhnz/

Definition: The minimum amount that must be withdrawn annually from a 401(k) or other retirement accounts starting at age 73 (as of 2023), ensuring that retirement savings are eventually taxed.

Etymology: "Required" from Latin "requirere," meaning "to seek or demand," "minimum" from Latin "minimus," meaning "smallest," and "distributions" from Latin "distributio," meaning "a division." RMDs prevent indefinite tax deferral.

Similar: Mandatory withdrawals, Compulsory distributions

Opposite: Voluntary distributions

Example: "Understanding how Required Minimum Distributions (RMDs) work is essential for tax planning in retirement."

Rollover IRA(Noun)

/: roh-loh-ver ahy-ahr-ey/

Definition: An Individual Retirement Account (IRA) that receives funds transferred from a 401(k) or another retirement plan, allowing the funds to continue growing tax-deferred without penalties.

Etymology: "Rollover" from Old English "roþ," meaning "to roll" and "off," and "IRA" from "Individual Retirement Account." A rollover IRA maintains the tax-deferred status of transferred retirement funds.

Similar: IRA rollover, Transfer IRA

Opposite: Direct distribution

Example: "Transferring your 401(k) funds into a rollover IRA can help you maintain tax advantages while gaining more control over your investments."

Roth Rollover(Noun)

/: rawth roh-loh-ver/

Definition: The process of transferring funds from a traditional 401(k) or IRA into a Roth IRA, requiring taxes to be paid on the transferred amount but allowing future withdrawals to be tax-free.

Etymology: "Roth" from Senator William Roth, who helped create the Roth IRA, and "rollover" from Old English "roþ," meaning "to roll" and "off." A Roth rollover involves converting funds to a tax-free account.

Similar: Roth conversion, Roth IRA rollover

Opposite: Traditional IRA rollover

Example: "A Roth rollover can provide tax-free income in retirement, but you must pay taxes on the amount converted."

Safe Harbor 401(k)(Noun)

/: seyf hahr-bur fawr-oh-wuhn-kay/

Definition: A type of 401(k) plan that automatically satisfies IRS non-discrimination testing requirements by providing employer contributions that are fully vested immediately, making it simpler to administer.

Etymology: "Safe harbor" from the concept of a protected area in a storm, and "401(k)" from the section of the IRS tax code. A Safe Harbor 401(k) ensures compliance with minimal complexity.

Similar: Compliant 401(k), Non-discrimination safe plan

Opposite: Traditional 401(k)

Example: "A Safe Harbor 401(k) can simplify plan administration by avoiding the need for annual non-discrimination testing."

Salary Deferral(Noun)

/: sal-uh-ree dih-fur-uhl/

Definition: The portion of an employee’s salary that is withheld and contributed to their 401(k) plan on a pre-tax or Roth basis, reducing their taxable income or contributing to tax-free growth, depending on the type of deferral.

Etymology: "Salary" from Latin "salarium," meaning "wage," and "deferral" from Latin "differre," meaning "to postpone." Salary deferral reduces taxable income or contributes to future tax-free withdrawals.

Similar: Salary contribution, Income deferral

Opposite: Salary inclusion

Example: "Increasing your salary deferral to your 401(k) can significantly boost your retirement savings."

Self-Employed 401(k)(Noun)

/: self em-ploid fawr-oh-wuhn-kay/

Definition: A retirement plan designed for self-employed individuals or small business owners with no employees, allowing them to contribute both as the employee and employer, resulting in higher contribution limits than a traditional IRA.

Etymology: "Self-employed" from Old English "self," meaning "one's own person," and "employed" from Old French "employer," meaning "to use," and "401(k)" from the section of the IRS tax code. A self-employed 401(k) maximizes retirement savings for individuals with their own businesses.

Similar: Solo 401(k), Individual 401(k)

Opposite: Traditional 401(k)

Example: "A self-employed 401(k) allows you to save more for retirement by contributing as both employer and employee."

Solo 401(k)(Noun)

/: soh-loh fawr-oh-wuhn-kay/

Definition: A retirement savings plan for self-employed individuals or small business owners with no full-time employees, offering the ability to make higher contributions by acting as both employer and employee.

Etymology: "Solo" from Latin "solus," meaning "alone," and "401(k)" from the section of the IRS tax code. A solo 401(k) allows high contribution limits for self-employed individuals.

Similar: Self-employed 401(k), Individual 401(k)

Opposite: Group 401(k)

Example: "A solo 401(k) is an excellent option for maximizing retirement contributions if you are self-employed."

Stock Fund(Noun)

/: stok fuhnd/

Definition: A type of mutual fund or ETF within a 401(k) plan that invests primarily in stocks, aiming to achieve capital growth through equity investments, suitable for participants with a higher risk tolerance.

Etymology: "Stock" from Old English "stocc," meaning "a tree trunk," and "fund" from Old French "fons," meaning "bottom or base." Stock funds focus on equity investments for potential growth.

Similar: Equity fund, Stock mutual fund

Opposite: Bond fund

Example: "Investing in a stock fund can provide significant growth potential in your 401(k) but also comes with higher risk."

Summary Plan Description (SPD)(Noun)

/: suhm-uh-ree plan dih-skrip-shuhn/

Definition: A document that provides participants with essential information about their 401(k) plan, including eligibility, contributions, vesting, and distribution rules, required by ERISA to be distributed to all plan participants.

Etymology: "Summary" from Latin "summarium," meaning "a summary," "plan" from Latin "planus," meaning "flat or level," and "description" from Latin "descriptio," meaning "a representation." The SPD provides a clear overview of the 401(k) plan.

Similar: Plan summary, Plan overview

Opposite: Detailed plan document

Example: "The Summary Plan Description (SPD) is your go-to resource for understanding the key features of your 401(k) plan."

Target Date Fund(Noun)

/: tahr-git deyt fuhnd/

Definition: A type of mutual fund in a 401(k) plan that automatically adjusts its asset allocation to become more conservative as it approaches a specific target retirement date, simplifying investment management for participants.

Etymology: "Target" from Latin "targus," meaning "shield," and "date" from Latin "datum," meaning "given," and "fund" from Old French "fons," meaning "bottom or base." A target date fund adjusts risk as the target retirement date nears.

Similar: Lifecycle fund, Retirement date fund

Opposite: Static allocation fund

Example: "A target date fund automatically rebalances your 401(k) investments as you approach retirement, reducing risk over time."

Taxable Withdrawals(Noun)

/: taks-uh-buhl with-draw-uhlz/

Definition: Withdrawals from a 401(k) or other retirement accounts that are subject to income taxes, typically because they consist of pre-tax contributions and earnings, and may also be subject to penalties if taken early.

Etymology: "Taxable" from Latin "taxare," meaning "to assess," and "withdrawals" from Old English "wiðdragan," meaning "to draw back." Taxable withdrawals are subject to income taxes when taken from a 401(k).

Similar: Taxed distributions, Taxed withdrawals

Opposite: Tax-free withdrawals

Example: "Most 401(k) distributions are taxable withdrawals, so it's important to plan for the tax impact when taking out funds."

Third-Party Administrator (TPA)(Noun)

/: thurd pahr-tee ad-min-uh-strey-ter/

Definition: An organization hired by an employer to manage various administrative tasks of a 401(k) plan, such as record-keeping, compliance testing, and processing contributions and distributions, ensuring the plan operates efficiently.

Etymology: "Third-party" from Latin "tertio" meaning "third" and "party," from Old French "partie," meaning "a part," and "administrator" from Latin "administrare," meaning "to manage." A TPA oversees the administration of a 401(k) plan.

Similar: Plan administrator, External administrator

Opposite: Internal administrator

Example: "Hiring a third-party administrator (TPA) can help ensure that your 401(k) plan remains compliant with IRS regulations."

Top-Heavy Plan(Noun)

/: top hev-ee plan/

Definition: A 401(k) plan that is deemed "top-heavy" if more than 60% of its assets are attributed to key employees, triggering additional compliance requirements to ensure that non-key employees also benefit fairly from the plan.

Etymology: "Top-heavy" from the concept of imbalance, where the top portion outweighs the bottom, and "plan" from Latin "planus," meaning "flat or level." A top-heavy plan requires additional measures to maintain equity among participants.

Similar: Imbalanced plan, Key employee-heavy plan

Opposite: Balanced plan

Example: "If your 401(k) plan is classified as a top-heavy plan, your employer may need to make additional contributions to non-key employees."

Withdrawal Age(Noun)

/: with-draw-uhl eyj/

Definition: The age at which a 401(k) participant can begin taking penalty-free withdrawals from their account, generally 59½, although some plans allow earlier withdrawals under specific circumstances without penalties.

Etymology: "Withdrawal" from Old English "wiðdragan," meaning "to draw back," and "age" from Old French "aage," meaning "period of life." Withdrawal age determines when you can access your 401(k) funds without penalties.

Similar: Retirement age, Distribution age

Opposite: Contribution age

Example: "Reaching the withdrawal age of 59½ allows you to access your 401(k) savings without incurring a 10% early withdrawal penalty."

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