Products & Services
- Stock & Mutual Fund review
- Asset Allocation Models
- Portfolio Review
- Retirement Distribution Options
- Insurance Analysis and Planning
- Money and Cash Management
- College Planning
- Charitable Planning
- Stocks, Bonds, Mutual Funds
- Stock Options
- Unit Investment Trusts
- Annuities (Fixed and Variable)
- Retirement plans
- 401(k) plan, 403(b 457)
- Money Purchasing Plan
- Profit Share Plan
- Profit Share Plan
- Money Purchasing Plan.
- Simple IRA
- Traditional IRA
- Roth IRA
- REITs and BDC’s
INSURANCE (ALSO AVAILABLE FOR FOREIGN NATIONALS)
We understand that creating and managing your wealth is only half the battle; preserving it is just as important. Insurance strategies can help you preserve your wealth during your lifetime, and protect the value of your estate for your family and other beneficiaries
Estate Creation and Preservation
You can preserve your estate by having insurance proceeds pay for taxes, liabilities, estate-related fees and other future costs which are triggered by the passing of a loved one.
Estate Maximization and Protection
Use segregated funds as an additional asset class to protect your hard earned savings while achieving stock market performance.
Tax-exempt insurance can eliminate the annual taxes you pay on your investment growth, as well as those payable when you die.
Certain annuities can be utilized as an income supplement to complement your retirement cash flow while protecting your principal.
Business decisions are made every day which affect the financial health of your business or Professional Corporation. Having the best possible tools to help effectively manage your business finances is crucial, but it is even more important to know how to combine them. We strive to bring you cutting edge strategies aimed at helping your businesses grow to protect what you value most.
Using tax-exempt life insurance is a tax-efficient means of transferring wealth out of a corporation and into the hands of the next generation.
Funding Buyout Agreements
In the case of partnerships insurance can provide a method of funding buyout agreements so that the remaining partner takes full control of the business and the surviving family is properly compensated.
Shared ownership of a permanent insurance policy can be an attractive way of protecting the company against the death of an employee.
Minimizing Corporate Taxes
Insurance can not only reduce a corporation’s taxable income but can help lower the value of the business by the amount of the investment, in turn reducing the capital gains tax liability.
Maximizing Corporate Assets
Using a Universal Life or Whole Life policies tax deferred capabilities; corporate assets can avoid accrual taxation and therefore grow to a much greater value then if invested in the traditional format. In addition to the tax benefits, upon death the proceeds can be paid out of the corporation tax-free hence saving approximately 33% of the tax liability.
Executive Life Insurance Planning
Provide managers and executives with Executive life insurance packages which serve to protect an executive’s family, while you benefit from an investment offering tax-deferred growth
Business Succession Planning
When an owner-shareholder retires or passes away a business succession plan can help protect your business. At EM Financial Services we will help you structure a proper succession plan which includes buy-sell agreements, a Will and powers of attorney.
Insurance is a great way of providing the necessary funds to the corporation for the purchase of a deceased shareholders unit shares in the business.
Key Person Insurance
For companies which rely on the skills and contributions of a single person; their sudden departure can create a financial void difficult to overcome. Taking out life insurance on this “key person” or these “key people” can help mitigate this cost.
Please Note: These calculators cannot be used to predict future performance of any investment and are not guaranteed calculations.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes.
1040 Tax Calculator
Enter your filing status, income, deductions and credits, and this calculator will estimate your total tax. Based on your projected withholdings for the year, you can also estimate your tax refund or amount you may owe the IRS next April.
Estate Tax Planning
Knowing your potential estate tax liability is a great place to start your estate tax plan. Use this calculator to estimate your estate tax liability.
Payroll Deductions Calculator
Use this calculator to help you determine the impact of changing your payroll deductions.
Roth IRA vs. Traditional IRA
Use this calculator to determine which IRA may be right for you.
Required Minimum Distribution (RMD)
Use this calculator to determine your Required Minimum Distributions (RMD) as an account owner of a retirement account. This financial calculator will also look at potential future year's distribution requirements.
Account Balance-Charge or Credit: Savings accounts may post interest earned, or credit cards may post charges based on an established policy. Five of the most popular account balance procedures which post credits or charges are: a previous balance; an adjusted balance; an average daily balance; a past due balance; and a final balance.
Accounts Reconciliation: The beginning balance plus the sum of all entries on a ledger or in a checkbook register must equal the ending balance on an account statement. Deposits, interest received, and credits are added to the beginning balance. From this total amount, automatic withdrawals, checks outstanding, checks negotiated, and account charges are subtracted. When the resulting balance equals the ending balance on the account statement, the account is reconciled.
Active Participant: A person, or his or her spouse, who participates in any of the following employer-sponsored retirement plans for any part of an applicable year: 1) a qualified pension, stock bonus, or profit sharing plan, 2) a qualified annuity plan, 3) a tax-sheltered annuity (TSA) plan, 4) a simplified employee pension plan (SEP), or 5) a local, state, county, or federally sponsored retirement plan.
Actuary: Insurance contracts and retirement plans require professional calculation of payments to be received and benefits to be paid. An actuary analyzes all probability and risk estimates based upon past experiences to confirm obligations are pragmatic and attainable.
Additional Voluntary Contributions: Employers frequently establish qualified tax-deferred retirement plans for eligible employees. Some employers match employee contributions to a predetermined maximum percentage level. Beyond any matching amount, employees are permitted to deposit additional voluntary contributions, usually pre-tax, up to a scheduled monetary limitation.
Adjustable Rate Mortgage (ARM): Also called a variable rate mortgage. A mortgage in which the interest rate is adjusted periodically, usually at intervals of one, three, or five years, based on a measure or an index, such as the rate on US Treasury bills or the average national mortgage rate. In exchange for assuming some of the risk of a rise in interest rates, a borrower receives a lower rate at the beginning of an ARM than if he or she had taken out a fixed-rate mortgage.
Adjusted Gross Income (AGI): On a federal income tax return, AGI is calculated by first combining income from all sources, and then subtracting certain allowable deductions and adjustments to income.
Advance: A services company may establish a salary advance to assist new employees with initial cash flow problems, or to help seasoned employees with emergency needs. The advance represents money received before it is actually earned. In addition, some businesses will establish an employee cash advance program to provide for business-related travel expenses.
Aggressive Growth Fund: A mutual fund with the objective of maximizing long-term capital growth, rather than dividend income, by investing in narrow market segments and small company stocks.
Allocation Formula: Employers make contributions to employee profit sharing accounts based on an allocation formula. The formula also governs the reallocation of funds forfeited by employees who terminate from the plan.
Alternative Minimum Tax (Corporation): A federal tax applied to regular business income with adjustments made for tax preference items.
American Stock Exchange (AMEX): Stock exchange located in downtown Manhattan, generally trading in smaller stocks compared to the New York Stock Exchange (NYSE).
Amortization: The process of reducing an outstanding loan balance by making regular payments of principal and interest until the debt’s maturity.
Annual Percentage Rate (APR): The cost of credit or a loan expressed as a simple annual percentage. The Federal Truth In Lending Act requires all consumer credit agreements and loans to disclose the APR in large, bold type. On a mortgage, the APR is usually higher than the stated interest rate, since it includes points and other charges.
Annual Report: The yearly financial statement issued by a mutual fund to its shareholders. It reports on the fund’s assets, liabilities, and year-end earnings, as well as certain historical information.
Annuitant: The person to whom an annuity is payable.
Annuity Cash Refund: In an income for life annuity, the contract may include a death benefit for the total premiums paid. When the annuitant dies, the annuity cash refund will be the net sum of premiums paid minus the amount received in annuity payments.
Annuity Certain: An option in an annuity contract where the annuity owner selects a future level payment of income covering a specified number of years, generally ten years. If the annuitant predeceases before the expiration of the annuity payments, the remaining obligation is transferred to the designated beneficiary in the annuity contract.
Annuity Joint and Survivor: In contrast to distribution of income for one annuitant, an annuity joint and survivor provides for annuitized payments over two designated lives. Upon the death of the first annuitant, the surviving annuitant receives prearranged, continued payments for life, based on a percentage received by the first annuitant.
Annuity Joint Life: While two or more individuals may be named annuitants, payments cease at the death of the first annuitant in an annuity joint life contract.
Annuity Modified Refund: In a contributory retirement plan, the annuity beneficiary of a deceased retiree receives the accumulated balance of the pension fund.
Annuity Payout Option: An alternative an annuitant has for how he or she may receive annuity payments. Annuities may be received in a variety of ways: as a fixed dollar amount, for a fixed period, or over the lifetime(s) of one or two annuitants.
Annuity: A life insurance contract guaranteeing the purchaser, or his or her beneficiary, payment in the future, usually during retirement. Annuities may be structured in different ways with different payout options. Funds invested in an annuity grow on a tax-deferred basis.
Application Fee: A fee lenders may charge to process a loan application. Paying this fee does not guarantee loan approval. Some lenders apply the cost of the application fee toward certain closing costs.
Appraisal: An assessment of a property’s value based on information from recent sales of similar properties.
Asset Allocation: The process of determining how investment funds will be apportioned among different classes of financial assets, such as stocks and bonds. Many financial advisers believe that the investment mix has a greater impact on long-term portfolio performance than does any individual investment.
Asset Class: Securities with similar features. The three main asset classes are stocks, bonds, and cash reserves.
Asset: Property with a cash value, such as real estate, equipment, savings, and investments.
Assignment: The legal transfer of the entire or partial ownership of an asset, such as an insurance policy, to another person or entity.
Automatic Reinvestment: A prearranged investment plan that automatically deposits mutual fund dividends or capital gains back into the fund to purchase additional shares.
Backup Withholding: Unless a Social Security or Tax Identification number is filed with a financial institution, the Internal Revenue Service requires 20% of all interest or dividend income be withheld. Backup withholding may be avoided by filing a W-9 form when opening an account with a financial institution.
Balance: The amount of money in a bank account after deposits, withdrawals, interest, and bank charges.
Balloon Mortgage: A mortgage with a final payment considerably larger than the preceding payments. Balloon mortgages are typically used when borrowers anticipate receiving a large sum of extra cash to pay the balance, or when they expect to refinance before the balloon payment comes due.
Bankruptcy: An inability to pay outstanding debt, in full or in part, or declaring insolvency may lead to bankruptcy. There are three parties to any bankruptcy proceeding: debits, creditors, and a trustee. Bankruptcy is an expensive process and may adversely affect future credit opportunities. Some more recognizable bankruptcy applications are:
Chapter 7: A debtor (individual) is declared bankrupt and a court appointed trustee initiates a liquidation process and a discharge of all eligible debts. The debtor has no financial sources to attempt a reorganization. A separate taxable entity is created.
Chapter 11: A debtor (business, individual, or partnership) is declared bankrupt, but is allowed reorganization to attempt debt repayment. Creditor approval is required. A separate taxable entity is created.
Chapter 13: A debtor (individual or sole proprietor) is declared bankrupt, but is allowed to retain estate-related assets and to restructure debt obligations for eventual payment. No creditor approval is required.
Basis Point: One one-hundredth of one percent. For example, 40 basis points equal 0.40%.
Basis: The original cost and any additional outlays represent the cost basis in equity investments or property. The Internal Revenue Service computes the taxable gain, profit, or appreciation on the difference between the basis and the actual amount of sale. Therefore, defining basis as original price, and not as total cost, may incorrectly result in an inflated tax liability.
Bear Market: An extended period of declining security prices.
Beneficiary: A person or entity named in a life insurance policy, a qualified retirement plan, or an annuity, or one who is eligible by the terms of such a policy or plan, to receive benefits upon the death of the insured or the plan participant.
Beta: A measure of a security’s price fluctuations (volatility) relative to an appropriate market index. For example, the Standard & Poor’s 500 Stock Index (S&P 500) has a beta of 1. Stocks with betas greater than 1 are subject to more rapid and extreme price fluctuations than the market. Conversely, price fluctuations for stocks with betas less than 1 are less frequent and smaller than the market. Conservative investors generally seek lower-beta securities, while aggressive investors seek higher-betas.
Blue Chip Stock: The common stock of a company with a reputation for quality products, services, and management, and a long history of earnings growth and dividend payments. Examples of blue chip companies include General Electric, International Business Machines, and DuPont.
Bond: A debt security issued by a corporation, government, or government agency obligating the issuer to pay interest periodically and repay the principal at maturity.
Broker: A financial professional who sells insurance or securities, and oversees a client’s insurance or investment portfolio.
Budget: Projected income and expenses for a given period.
Bull Market: An extended period of rising security prices.
Business Succession: A prearranged process that addresses the future orderly transfer of a business entity and plans for every alternative contingency that would affect any transfer. Business succession broadly involves legal, financial, tax, and family concerns.
Buy-and-Hold: An investment strategy that advocates holding securities for the long-term, while ignoring short-term price fluctuations.
Buy-Sell Agreement: A written, legal buy-sell agreement provides for the purchase of all outstanding shares of an owner who wishes to sell, terminate involvement, is permanently disabled, or dies. Such an agreement allows for different future ownership structure. The agreement is usually funded with life and disability insurance, and contains specific purchase arrangements.
Cafeteria Employee Benefit Plan: An employee benefit plan offering a variety of benefit options from which individual employees may select. Depending on personal needs and finances, employees may voluntarily elect benefits (e.g., life, health, disability, health coverage).
Canceled Check: A cashed check. The bank returns canceled checks, or a copy of them, in a monthly statement for the check writer’s records.
Capital Gains Distribution: Payments to mutual fund shareholders of profits from the sale of securities in the fund’s portfolio, usually made on an annual basis.
Capital Gains Tax: Tax on profits from the sale of securities, or fixed assets, such as land, buildings, equipment, and furniture.
Capital Loss: A decrease in a security’s selling price from its purchase price.
Cash Advance: An instant loan obtained from a credit card account. Issuers charge interest from the date of the advance until it is repaid. They may also charge a transaction fee based on the amount of the advance.
Cash Basis: An accountancy reporting method that recognizes cash inflows or outflows when actually expended or received.
Cash Budget: A budget used to quantify an immediate, short-term cash flow. Reviewing daily, weekly, and monthly expenditures is essential for a resolution to establish credit lines or contemplate investing short-term idle cash.
Cash Flow: Cash income less cash payments for a given period. Individuals whose assets exceed their liabilities (claims against the assets) may still get into financial difficulty if they don’t have enough cash to meet their current obligations.
Cash Management: Channeling available cash into expenditures that enhance productivity, directly or indirectly.
Cash Surrender Value: The amount the policyowner receives when terminating a cash value insurance contract. Computation of the cash surrender value is stated, by law, in the contract.
Cash Value: The accumulated cash build-up in a whole life policy that a policyholder receives if the policy is redeemed before its maturity or the policyholder’s death.
Casualty Loss: Sudden and unexpected losses due to damage, destruction, fire, or theft. that are usually reimbursed either in full or in part by insurance contracts. Amounts of compensation are listed for losses are not usually tax-deductible if full restitution is made by the insurance carrier. However, claims denied or not covered are potentially tax-deductible.
Certificate of Deposit (CD): An insured, interest-bearing debt instrument issued by a bank. Individual CDs start as low as $100 and have maturities ranging from a few weeks to several years.
Check: A written transfer of money from a bank account, used in place of cash.
Claim: A request for payment under the terms of an insurance policy.
Claims-Paying-Ability Rating: An assessment of an insurance company’s ability to pay claims, relative to other insurance companies.
Closing Costs: Also called settlement costs. The expenses involved in transferring real estate from a seller to a buyer. Typically includes fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Does not include points and the cost of private mortgage insurance (PMI).
Closing: The process of transferring real estate from a seller to a buyer.
Cloud on Title: An apparent or potential claim, lien, or right on real estate. The title is not clean and a quitclaim deed must be filed to resolve the potential hindrance. For instance, a paid loan with property secured may not have been recorded or a deceased owner was never removed from the deed to a house or title of a car.
Combined Financial Statement: An individual or corporation may own more than one affiliated business enterprise. Each has a complete set of financial documents. To provide a financial overview of all affiliates, a combined financial statement will present side-by-side accountings of balance and net worth statements.
Commercial Loan: Short-term credit lines and commercial loans represent two important sources of short-term financing. Businesses, for example, in need of additional inventory to complete existing orders will frequently bolster immediate cash flow with a commercial loan. The loan will be based on the credit worthiness of the business and/or owner and the prime lending rate.
Commercial Paper: A short-term debt obligation frequently used as investments by money market accounts with a life cycle of less than six months, but more than one day. Commercial paper is rated as a safe investment, backed by major institutions.
Commission: A broker’s fee for executing a trade, based either on the dollar amount of the trade or the number of shares traded.
Commitment: A written agreement specifying the terms and conditions under which a lender will loan and a borrower will borrow funds to finance a home.
Common Stock: A security representing partial ownership, also called equity, in a corporation, and which entitles shareholders to participate in stockholder meetings and to vote for the board of directors.
Compounding: The process of applying investment growth not only to the original investment, but also to income and gains reinvested in prior periods.
Construction Loan: Short-term financing to fund the cost of real estate construction. The lender disburses funds as work progresses or according to a prearranged schedule. The loan is repaid at project completion.
Contingent Beneficiary: Also called secondary beneficiary. The beneficiary who receives the proceeds of a life insurance policy if the primary beneficiary predeceases the insured. For instance, a child might be the contingent beneficiary of a policy where the child’s mother or father is the primary beneficiary.
Contingent Liabilities: An unplanned and unforeseen potential financial judgment. In practice, many individuals and corporations face contingent liabilities. Therefore, contracts for sale and transfer of ownership should address all latent contingent liabilities.
Convertible Term Insurance: Term insurance that a policyholder may exchange for another type of coverage without providing evidence of insurability.
Corporate Bond: A debt security issued by a corporation obligating the issuer to pay interest periodically and repay the principal at maturity.
Correction: A short-term reversal, usually downward, in the prices of stocks, bonds, or commodities, bringing them more in line with their underlying fundamental values.
Co-Signer: An individual who adds his or her signature to a loan or a credit card agreement along with the principal applicant, and who thereby assumes responsibility for paying the outstanding balance if the applicant defaults.
Cost of Insurance: The total premium outlay paid for a potential death benefit from a life insurance policy. On an annual basis, the policyowner may consult a government publication, P.S. 58 tables, or, if available, the annual renewable term rates from the carrier for the "pure" insurance cost at each attained age.
Covenant not to Compete: A contractual promise to refrain from performing professional or similar business activities. The legal enforcement of a covenant not to compete depends on the wording, compensation, duration, and situation.
Credit History: The record of how an individual has paid his or her debts. A credit report discloses an individual’s credit history.
Credit Line: A revolving credit agreement allowing a person to borrow any amount up to a preapproved limit for purchases or cash advances. As the outstanding balance is paid off, the credit again becomes available to fund new purchases or cash advances.
Credit Rating: Formal evaluation of a company’s ability to pay interest and repay principal on borrowed money, as published by a credit rating agency or service. For example, Standard and Poor’s and Moody’s Investor Service rate corporate bonds.
Death Benefits: Payments from an insurance policy or an individual retirement account (IRA) to a beneficiary.
Debit Card: A card that allows an individual to pay for purchases with funds that are immediately deducted from his or her checking or savings account.
Debt: A legal obligation, written or oral, to deliver a product, service, or cash.
Debt-to-Equity Ratio: The ratio of total debt to total shareholder equity indicates the level of capability for repayment of outstanding creditors. In addition, long-term debt as a function of shareholder equity indicates the degree of leveraged money to improve shareholder rates of return.
Decreasing Term Insurance: A term insurance policy with a death benefit that decreases over time. Decreasing term insurance is often used in conjunction with a mortgage or other amortized debt. For example, a holder of a 30-year mortgage may also hold a 30-year decreasing term insurance policy to cover the mortgage if he or she dies before it is paid off.
Deed: A document identifying legal ownership of real estate, and used to transfer it from a seller to a buyer.
Deferred Annuity: An annuity that pays an income or lump sum at a future date.
Deferred Compensation: The deferral of constructive receipt of current earned income or compensation to a later date, usually retirement, so future receipt might experience a potentially lower marginal tax rate.
Defined Benefit Plan: An employer-funded retirement plan designed to pay a predetermined benefit based on an employee’s salary and service.
Defined Contribution Plan: Employee-funded retirement plans, such as 401(k)s and 403(b)s, that pay benefits based on the amount the employee has accumulated over his or her working life.
Deflation: Reduction in the price of goods and services. Deflation occurs when there is an outright decline in the consumer price index (CPI) or producer price index (PPI). Raw materials, oil, base materials, copper, and the Commodity Research Bureau’s nonfinancial futures price index will evidence lower trends.
Dependent Student: An unmarried student under age 24 with no dependents, who still has access to parental support.
Deposit Slip: A form the bank provides to use when making a deposit.
Deposit: The money put into a bank account.
Depreciation: The decreasing value of a fixed asset during its projected life expectancy. The Internal Revenue Service permits several processes to calculate annual depreciation amounts over asset life expectancy.
Derivative: A security whose value is based on a traditional security, an asset, or a market index.
Direct Rollover: A tax-free transfer of funds from one retirement plan to another. Distributions from a qualified retirement plan may be transferred to another retirement plan or an individual retirement account (IRA), while funds from an IRA may be rolled over to another IRA.
Disability Benefit: Benefits received from an insurance policy that are payable if the insured becomes totally (and sometimes partially) disabled.
Disability Insurance: A policy that pays a portion of the insured’s income in the event of temporary or permanent total disability.
Discount Broker: A brokerage firm that buys and sells securities at lower rates than a full service broker. Discount brokers generally do not offer all the services of full service brokers.
Diversification: Strategy for reducing the risk of investing in a single industry/market sector or a small number of companies, by spreading the risk over several industries/market sectors or a larger number of companies.
Dividend: Distribution of earnings to shareholders of corporations and mutual funds, or life insurance policyowners, generally paid in the form of money or stock.
Dollar-Cost Averaging: A method of investing a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low, and fewer shares when prices are high. This generally results in a lower average cost per share than if the investor had purchased a constant number of shares at the same periodic intervals. An investor should consider his or her financial ability to continue through all types of market conditions. Dollar cost averaging will not assure a profit or protect against loss in a down market.
Double Taxation: Business profits and income of sole proprietors, partnerships, and S corporations receive taxation only at the individual taxpayer level. However, C corporations experience taxation at the corporate level and the individual taxpayers pay taxes on dividends.
Dow Jones Industrial Average (DJIA): The price-weighted average of 30 actively traded blue chip stocks on the New York Stock Exchange (NYSE). The DJIA represents approximately 15% to 20% of the market value of NYSE stocks.
Early Distribution: A distribution from an individual retirement account (IRA) taken before age 59 1/2. Early withdrawals are usually subject to a 10% penalty.
Education IRA: A savings vehicle that allows parents to receive tax-free savings on money earmarked for a child’s college education. There are limits on income eligibility and on how much may be set aside per year in an education IRA.
Electronic Banking: Many banking institutions provide computerized network services that provide account holders access to their accounts by personal computer. Customers may make payments directly to stores, credit card accounts, mortgage companies, utility companies, and other creditors. Individuals having two or more bank accounts may also transfer cash between accounts.
Electronic Check: The use of a computerized network to draft checks for the payment of bills and the purchase of goods and services.
Electronic Commerce: Buying and selling of capital goods and services on a computerized network, such as the World Wide Web.
Electronic Funds Transfer System (EFTS): Funds may be electronically transferred between accounts of buyers, sellers, and other individuals. This service allows for direct deposits or withdrawals without processing written checks.
Employee Benefit Plan: The total compensatory package of employee benefits offered by an employer beyond the salary or wage scale.
Employee Pension Benefit Plan: An employer sponsored benefit plan for eligible employees to provide additional retirement accumulations through pre-tax and tax-deferred contributions.
Employee Retirement Income Security Act (ERISA): Most pension and retirement plans became subject to government overview and the establishment of several federal limitations and practices under ERISA in 1974.
Employee Stock Ownership Plan (ESOP): A popular employee plan that encourages employee ownership and allows employees to become actually involved in their company’s success.
Employee Welfare Benefit Plan: In contrast to pension plans, employees are offered fringe-benefit, or employee welfare benefit plans, which may include health, disability, paid vacations, paid state and national holidays, or compensation to beneficiaries at death. In some plans, the health portion of coverage may describe dollar or percentage coverages for medical, surgical, or hospital based on an itemized schedule.
Endorse: To sign the back of a check to receive payment.
Endowment: A life insurance policy paid to the policyholder on the maturity date, or to a beneficiary if the policyholder dies before that date.
Equity Loan: A loan a homeowner takes against the accumulated equity in his or her home using the property to secure the debt. Also, a variation on a second mortgage. An equity loan may be structured as a line of credit the homeowner can access with a check or credit card.
Equity: The difference between a property’s current market value and the sum of all claims against it.
Escrow: Property, such as money or securities, held by a third party until a contract’s conditions are met.
Estate Planning: The process of planning for the orderly administration and disposition of assets after the owner dies.
Estate Tax: Federal and/or state taxes levied on assets of a decedent (person who dies). Estate taxes are paid by the decedent’s estate rather than his or her heirs.
Excess Compensation: In a benefit pension plan that is integrated with federal old-age, survivors, and disability insurance (OADSI), excess compensation is above that specified amount upon which calculations for future benefits are based.
Excess Contribution: The amount of an individual retirement account (IRA) contribution above the allowable limits. If not corrected, a 6% Internal Revenue Service penalty applies.
Executor: A person named under a will to administer the distribution of the deceased’s assets as directed by the will. An executor is often a family member, a trusted friend, or a bank trust officer.
Family Limited Partnership (FLP): A partnership of family members to arrange for generational transfers, maintain control in the general partners, and reduce potential liability to the transferor and transferee. Family limited partnerships utilize the benefits in wealth preservation, taxation, credit protection, and estate planning.
Federal Reserve System (The Fed): The central banking system that regulates the national money supply. The Fed Board establishes Federal Reserve System policies and sets interest rates.
Fiduciary: An individual, commonly a trustee of a trust, who assumes legal responsibility to perform duties or manage affairs for the benefit of another person or beneficiary. An attorney assumes a fiduciary role when representing clients.
Financial Aid: The financial support a student receives from federally and privately funded sources to attend college. Financial aid includes loans, grants, scholarships, and work-study programs.
Financial Statement: Written records concerning the financial circumstances of a business organization. Such a statement generally includes balance sheets, changes in retained earnings, profit and loss statements, cash flows, and other forms of financial analysis that are beneficial to management.
First-to-Die Life Insurance: A life insurance policy covering two or more people that pays the death benefit when the first person dies. First-to-die life insurance is often used to cover mortgage payments, or to fund buy-sell agreements.
Fixed Annuity: An annuity that guarantees a fixed payment, either for life or for a specific period.
Fixed-Rate Mortgage: A mortgage with a set interest rate that will not vary for the life of the loan.
Floating Debt: Using government Treasury bills or short-term corporate bonds which, when continually renewed, pay off current liabilities or finance cash flow.
Flood Insurance: Insurance that covers against losses that are a direct result of flood damage. Flood insurance is required by lenders if a property is located in a flood zone.
For Sale By Owner (FSBO): The sale of a home directly by the owner, where the owner assumes all fiduciary responsibilities involved with the execution of all legal contracts, documents, and transactions.
Foreclosure: The legal procedure by which a mortgage holder, whether a bank, savings and loan, or private individual, can seize the property of a borrower who has not made timely payments on a mortgage. The lender must obtain a court order to seize the property, which it may then sell to satisfy the debt.
Forfeitures: Employees who terminate from an employer’s pension plan are forced to forfeit nonvested employer contributions. These forfeitures may be applied as credits to remaining employee accounts or used to offset future employer contributions, depending on the pension plan.
401(k) Loan: Loan taken from a 401(k) plan account. Loans must follow Internal Revenue Service (IRS) guidelines, as well as the rules set forth by the plan.
401(k): A defined contribution plan allowing employees to make pretax contributions up to a predefined annual limit. Many plans offer a variety of investment choices, including mutual funds, stocks, bonds, short-term reserves, and company stock.
403(b): A tax-sheltered annuity for employees of government and nonprofit organizations, allowing them to make pretax contributions up to a predefined annual limit.
Franchise: A license granted by a business or company allowing a designee to operate a franchise and market products or services in a fixed geographic area. Usually consummated with an initial cash requirement, the agreement may offer consultation, financing, promotional, or other stated benefits on an arranged percentage of sales basis.
Fringe Benefits: Opportunities and services offered beyond wages or salary. They are not generally taxable to the employee, but may have tax benefits to the employer. The employer contribution may be full payment, partial, or merely providing the opportunity for employee involvement. Some common fringe benefits may include paid holidays, sick days, paid vacation days, insurance coverage, retirement plans. Other less common benefits are company car, expense account, or stock options. Fringe benefits are important in attracting and retaining key employees.
Front-End Load: A sales fee (load) investors pay up-front at the time they purchase an investment.
Futures: Agreements to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future date.
General Ledger: Lists all financial accounts, including debits, credits, and balances.
General Partner: The managing partner of a limited partnership who possesses
Gift Tax: A tax levied by the federal government, and some states, on assets transferred from one person to another. The tax rate increases with the value of the gift. The donor pays the tax, not the recipient.
Gift: A voluntary transfer of property when no compensation involves either the transferor or the transferee. The transferor can not retain any incidence of ownership (e.g., control, possession, enjoyment, right to income, or power to designate persons who will receive benefits of ownership) after relinquishing control in the transferred gift.
Golden Boot: Offering lucrative financial incentives or extension of benefits usually to persuade an older employee to exercise the option for "early retirement." This voluntary election by an employee help avoid any conflict with age discrimination codes.
Golden Handcuff: Providing additional benefits to a valued and productive employee to induce him or her to remain with the business.
Golden Parachute: A benefits package secured by top executives if a layoff occurs due to a corporate buyout or takeover. The benefits may include out-placement, six months to
two years of severance pay, stock options, or a substantial bonus.
Government Bond: A bond issued by the US government.
Grace Period: A period of time after the due date of an insurance premium or loan payment during which the overdue payment may be made without penalty, and the policy or loan remains in effect.
Grant: A financial aid award that does not require repayment. Federal grants include the Federal Supplemental Educational Opportunity Grant (FSEOG) and the Pell Grant.
Gross Estate: The total value of a person’s assets before taxes and other debts.
Gross Monthly Income: The total monthly income from all sources, before taxes and other expenses.
Group Life Insurance: A life insurance policy that insures a group of people. Group life insurance is often provided by employers as an employee benefit, or by a professional association for its members.
Group Permanent Insurance: Some pension benefit plans seek to provide greater death benefits as well as a retirement income. The employer contracts with an insurance carrier to provide group permanent insurance to participating employees. At retirement, an employee’s retirement accumulations may be augmented by the cash surrender value of the policy. On the other hand, some insurance carriers offer employees a payroll-deducted permanent insurance plan not connected with the company’s employee pension benefit plan and usually offered with simplified underwriting.
Group Renewable Term Insurance: Many employee welfare benefit plans offer employees group renewable term life insurance based on increments of salary or a minimum flat amount for all participating employees.
Guardian: The legal representative of a minor child, as appointed by a will, or of a legally incapacitated adult.
Guardianship: The legal responsibility for the care of a minor child.
Highly Compensated Employee (HCE): The Internal Revenue Code has determined that a highly compensated employee of an employee benefit plan is one who receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels.
Home Equity: The difference between a property’s current market value and the sum of all claims against it. For example, a homeowner with a house currently valued at $200,000, and carrying a $150,000 mortgage, has $50,000 in equity. Home equity is included in the calculation of financial aid eligibility.
Hope Credit: A federal tax credit that gives families a maximum tuition credit of $1,500 per student per year for the first two years of post-secondary education. This is calculated as 100% of the first $1,000 of tuition and 50% of the second $1,000.
Household Income: The combined income of all household members from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.
Housing Ratio: Also called the front-end ratio or payment-to-income ratio. The ratio of the monthly housing payment to total monthly income.
Income: The amount received from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.
Index: An indicator of the market prices of securities issued by companies included in the index. An index is used to measure the movements of securities of similar companies. Some well-known indexes are the New York Stock Exchange Index (NYSE), the American Stock Exchange Index (AMEX), the Standard & Poor’s 500 Index (S&P 500), the Russell 2000 Index, and the Value Line Index.
Individual Retirement Account (IRA): A tax-deferred retirement savings account allowing individuals to contribute up to $3,000 annually, and single-income married couples up to $6,000 annually. The amount deductible for income tax purposes depends on income level. Individual Retirement Accounts and Individual Retirement Annuities are types of Individual Retirement Arrangements.
Inflation: A general rise in the price level of goods and services. Occurs when demand increases relative to supply. In other words, too much money chasing too few goods.
Initial Public Offering (IPO): A corporation’s first stock issue offered to the public.
Insufficient Funds: When a bank account does not contain enough money to cover a specific check.
Insurability: The ability of an insurance applicant to be accepted by an insurer, based on health, occupation, lifestyle, and finances.
Insurable Interest: A potential beneficiary who has a vested financial interest in the life of another person and who might suffer loss upon their disability or death. Side Note: Current laws have substantiated that charitable organizations have an insurable interest in their donors and, therefore, qualify as beneficiaries of donor life insurance policies.
Insured: The individual whose life is covered by an insurance policy.
Intangible Asset: Nonphysical resources that provide gainful advantages in the marketplace. Copyrights, software, logos, patents, goodwill, and other intangible factors afford name recognition for products and services. They are all examples of intangible assets and may provide significant value to a business operation.
Integrated Plan: An employee pension benefit plan may be included for benefit calculations with Federal Insurance Contribution Act (FICA) benefits, also known as Social Security, or with Old-Age, Survivorship, and Disability Insurance (OASDI) contributions.
Intellectual Capital: Representation of the financial value that human innovations, inventions, and intelligence bring to a business enterprise.
Inter Vivos Trust (living trust): A trust created during a grantor’s lifetime in which the grantor has the authority to revoke or change the trust until death. At the death of the grantor the trust becomes irrevocable. In contrast, a will may contain a testamentary trust which comes into existence only when the probate court authenticates a deceased grantor’s will and the provisions become irrevocable.
Interest Rate: The cost of borrowed money, expressed as a percentage for a given period of time.
Interest: The cost of borrowed money.
Internal Rate of Return (IRR): The theorem of internal rate of return is, in effect, compounding interest in reverse, or discounting. In contemplating a current investment with a proposed investment, IRR is a most efficient evaluation. The rate of return on a proposed investment should be equal to the present value of all future benefits, including revenues, as well as the gross costs associated with the (current) property investment. IRR is important in planning capital outlays, as well as evaluating rental real estate investments.
Investment Objective: An individual’s investment goal based on his or her time horizon and risk tolerance.
IRA Rollover: A tax-free transfer of funds from one individual retirement account (IRA) to another.
Irrevocable Trust: A trust that cannot be altered, stopped, or canceled. During circumstances where the trustee cannot interpret or carry out their specific duties, the court is then asked to make legal determinations.
Joint Tenancy: Also called joint tenancy with right of survivorship. A form of property ownership in which two or more people own an undivided interest in a property. Upon the death of one joint owner, ownership automatically passes to the surviving joint owner(s) without a court proceeding. Joint tenancy applies to property with a title or other certificate of ownership, such as mortgages, securities, and bank and brokerage accounts.
Keogh Plan: A tax-deferred qualified retirement account for employees of unincorporated businesses or for self-employed individuals. Section 415 of the Internal Revenue Code limits annual contributions to 25% of earned income up to a limit of $30,000. Withdrawals commence at age 59½, while contributions must cease at 70½.
Key Employee: An employee who possesses valued skills, craft knowledge, intellectual or organization abilities, and is crucial to the ongoing operation of the business or company and is difficult to replace.
Key Person Insurance: Small companies often have employees who possess craft or scientific knowledge, leadership, and valued skills. Hiring a replacement might alter business planning, profit, stability, and management. To address the financial aspect of replacing a key employee, the corporation becomes owner and beneficiary on an insurance policy that reimburses the company for untimely loss of a key person employee.
Lapsed Policy: A policy canceled for nonpayment of premiums. Also refers to a policy canceled before it has cash or surrender value.
Layoff: For other than performance or wrongdoing, an employee is no longer on the payroll of a business. A layoff is usually the result of a downturn in the economy, lower profit margins, or a paring down of business operations.
Lease: A contract granting the use of real estate or a fixed asset, such as a vehicle or equipment, for a specific period in exchange for periodic payments.
Leaseback (sale and leaseback): Example: A business owner sells all or part of the property from which the business operates to raise cash for business operations. The business owner agrees to lease the sold property for a term of years from the new owner. The leaseback offers security to the new owner because the seller becomes the tenant with business operations remaining at its present location on a potentially long-term basis.
Lease-Purchase Agreement: An agreement that states: 1) a portion of each lease payment applies to a future purchase of the leased property, or 2) the leaseholder possesses a right to buy the property during or at the conclusion of the lease term.
Lender: One who parts with something of value for specific compensation and for a stated or open duration of time.
Letters of Credit by a Bank: The bank, as issuer, substitutes its creditworthiness for a recipient customer and buyer in a single or series of sales transactions. The seller has little risk in default of payment by the buyer because of the letter of credit. A significant variation on a letter of credit is a letter guaranteeing performance for completion of a contract.
Level Premium Term Insurance: A life insurance policy for which premiums remain the same from year to year for a specified period.
Liability: Debt obligations are liabilities and creditors, in most cases, have a claim on the assets of the debtor. A balance sheet will usually list the creditor, amount of outstanding liability, and dates of maturity.
Life Annuity: An annuity that provides income for life.
Life Cycle: A time period measure from beginning to conclusion of an individual, product, or business. A corporate business entity, however, frequently has a life cycle beyond its founder or current owners. Therefore, small family businesses may compute life cycles in generational terms to plan an eventual transfer or liquidation.
Life Expectancy: The average number of years people of a given age are expected to live, according to a mortality table based on factors such as gender, age, heredity, and health characteristics.
Life Insurance: A type of insurance that pays a benefit upon the death of an insured person.
Lifetime Learning Credit: A 20% federal credit toward the first $5,000 ($10,000 after 2002) of qualified education expenses, including tuition and/or other educational expenses incurred to learn or improve job skills. This credit is available to college juniors and seniors, graduate students, and working Americans.
Limited Liability Corporation (LLC): In contrast to the unlimited liability inherent in proprietorships as a form of business ownership, a limited liability corporation provides limited liability to each shareholder to the extent of invested capital.
Limited Partnership: An organization managed by a general partner and financially backed by limited partners, offering limited liability to the extent of the amount invested by each individual limited partner. A limited partner does not supervise the daily operations or directly manage the partnership.
Liquid Assets: Cash, or assets easily converted into cash, such as bank deposits, money market fund shares, or US Treasury bills.
Liquidity Ratio: Ratios (cash asset ratio, current ratio, quick ratio) that quantify a company’s ability to discharge debt obligations maturing within one year.
Liquidity: The ability to quickly and easily convert assets into cash without incurring a significant loss.
Living Trust: Also called an inter vivos trust. A trust established by a living person that allows that person to control the assets he or she contributes to the trust.
Living Will: Also called a health care proxy. A written document that allows you to designate a representative to make your medical decisions if you become incapacitated due to accident or illness. Often, a living will identifies specific medical treatments a
Locking-In: Assuring an interest rate, such as on a mortgage, CD (certificate of deposit), or fixed-rate bond, has been set.
Long-Term Care Insurance: Insurance covering the cost of long-term nursing home care or in-home assistance.
Long-Term Debt: Liabilities that are due in a year or more and payable as the debt matures. In most instances, the debtor makes regular interest and principal payments during the interim. In contrast, investors purchase long-term debt, such as Treasury bonds, which mature in excess of ten years, usually for income and safety purposes.
Management Buyout: Management may wish to purchase the company. A leveraged buyout is the use of borrowed funds to complete the purchase. If management has existing funding sources to pay a premium over the existing fair market value of outstanding shares, the company becomes a private corporation without a majority of shares trading on the market. Motivations may include preservation of present management positions, privacy in management operations, or potentially substantial capital gain with future expansion and anticipated profits.
Management Fee: A charge against an investor’s assets for the fund manager’s services in overseeing the portfolio.
Mandatory Employee Contribution: While participation in an employee benefit plan is voluntary, participants who join agree to its contractual terms for mandatory employee contribution. Participants frequently enjoy the possible gain of employer matching contributions.
Market Risk: Also called systematic risk. The portion of a security’s risk common to all securities in the same asset class, and that cannot be eliminated through diversification.
Market Timing: Making buy-sell decisions by attempting to predict market trends, such as the direction of stock prices, the direction of interest rates, or the condition of the economy.
Maturity: The date a long-term interest-bearing investment, such as a bond, becomes due and payable.
Medicaid: Federal program that covers long-term nursing home care for individuals who are financially unable to do so.
Medical Savings Account (MSA): An employer-sponsored account that allows employees to help supplement high deductible health insurance coverage.
Medicare: Federal program that covers health care for individuals age 65 and over.
Minimum Participation Requirements: Employee benefit pension plans usually require minimum participation requirements. Generally, a participant must be a full-time employee, 21 years of age, and having completed one year of employment. Employee welfare benefit plans may provide a separate criterion for employee participation.
Monthly Housing Expenses: The sum of the principal, interest, and taxes a borrower pays on a monthly basis. Determines affordability in relation to total income.
Mortality Table: A statistical table showing the death rate of people at each age, usually expressed as the number of deaths per thousand.
Municipal Bond: A tax-exempt bond that may be issued by a state government or agency, or by a town, county, or other political subdivision or district.
National Association of Securities Dealers Automated Quotations (NASDAQ): A system quoting current prices for securities traded over the counter, as well as many listed on the New York Stock Exchange (NYSE).
Net Income: Total income minus expenses and taxes.
Net Worth: Assets minus liabilities. Commonly defined as "all that you own less all that you owe."
New York Stock Exchange (NYSE): Also called the Big Board and The Exchange. The oldest and largest stock exchange in the US, listing the country’s largest corporations.
Noncontributory Retirement Plan: A pension plan may be funded only with employer contributions, requiring no employee contributions. A "defined benefit" pension plan is a noncontributory retirement plan.
Nondeductible Contribution: A contribution made to an individual retirement arrangement (IRA) and designated by the holder as nondeductible for income taxes.
Nonforfeitable: Upon vesting, a benefit of an employee benefit plan becomes nonforfeitable and payable upon any occurrence listed in the employee contract. Some benefits may be conferred immediately or on a deferred basis.
Nonqualified Plan: A retirement or employee benefit plan that is not eligible for favorable tax treatment.
Notary Public: An officer of the public that can authenticate signatories on documents, and take depositions or oaths. A state or jurisdiction may authorize an applicant to certify specific documents usually for a term of years. Banks, insurance agencies, legal offices, and government buildings often have persons who are notary publics on staff.
Offering Price: The per-share price at which a stock or mutual fund is offered to the public.
Old-Age, Survivors, and Disability Insurance (OASDI): A tax levied on all self-employed and employed workers to fund Social Security benefits. A portion of the Federal Insurance Contributions Act (FICA) funds old-age, survivors, and disability insurance while a smaller portion funds hospital insurance. The premium tax is assessed based on an annual taxable wage base. However, employers and employees contribute a percentage of the FICA tax.
Option: The right to buy or sell a security for a specific price during a stipulated period. If the option is not exercised during this period, it expires and the buyer forfeits the money paid.
Ordinary Income: Income from normal activities, as distinguished from capital gains earned from the sale of assets.
Over The Counter (OTC): A security, typically of a smaller company, not listed or traded on an exchange. Also, a market where transactions are conducted among security dealers over a network of telephone and computer lines, rather than on the floor of an exchange.
Overdrawn: When more money is withdrawn from a bank account than it contains.
Paid-Up Additions: Additional life insurance coverage that is typically purchased with policy dividends. Paid-up additions may have a cash value component in addition to a death benefit.
Par: The face value of a stock or bond when issued. The par value may bear little relationship to a security’s current market value.
Partnership: A contractual association between two or more individuals who share in the management, as well as the profitability of a business venture. If the agreement specifically contracts for only an investment obligation, the investor is a limited partner. If responsibilities include management or supervision of operations, the holder of that responsibility is a general partner. Partnerships employ general partners, while limited partners associate through securities transactions.
Past Due: The period after a due date (the date a payment was due to a creditor). When an account is past due the creditor may assess a late fee, or consider the account delinquent, and report it to a credit reporting agency.
Patent: An official license granted by the Patent Office to issue exclusive right to an individual or business for production or sale of a specific invention. The financial value of a patent is the future monetary returns from its economic worth.
Pension: An employer-provided qualified retirement plan. Examples of pension plans include defined benefit plans, profit sharing plans, bonus plans, employee stock ownership plans (ESOPs), thrift plans, target benefit plans, and money purchase plans.
Permanent Life Insurance: Life insurance with a cash value, such as whole life or variable life. Permanent life insurance generally refers to most forms of life insurance other than term.
PITI: Principal, interest, property taxes, and insurance generally comprise the monetary payment to a mortgage lender. Residential mortgage lenders usually require evidence that homeowners have property and casualty insurance if they do not fund the insurance as part of their monthly payment.
Plan Administrator: As designated in the insurance or retirement documents, plan administrators of employee benefit programs maintain government regulations and procedures, and confirm that all participating employees receive annual reports.
Plan Sponsor: Employers who establish and perpetuate a qualified employee benefit pension plan. Although the plan sponsor (employer) has the ultimate responsibility for plan administration, plan sponsors often use an outside consultant, corporation, government agency, or labor organization to confirm the implementation of Internal Revenue Code regulations and guidelines in plan administration.
Points: Prepaid interest a borrower pays to a lender at closing. A point equals 1% of the total principal of the loan. For example, on a $100,000 mortgage four points would cost a borrower $4,000.
Policy Dividend: A refund of part of a life insurance premium reflecting the difference between the premium charged and the insurer’s actual cost of providing coverage, if lower than previously anticipated.
Policy Exclusion: An item specifically not covered by an insurance policy.
Policy Loan: A loan made by an insurance company, secured by the cash surrender value of a life insurance policy.
Policy Reserves: The funds that a state requires an insurer to hold to cover all policy obligations.
Policy Rider: A provision that may be added to an insurance policy to increase or limit the benefits the policy otherwise provides.
Policy: The legal written document stating the terms of an insurance contract.
Policyholder: The person or entity owning an insurance policy. The policyholder is usually the insured, but may also be a spouse, business partner, partnership, or corporation.
Portability: The ability of an employee to keep benefits after employment ceases. With a mobile workforce in which employees move from one company to another, portability of employee benefits, especially insurance and retirement plans, is important. Concerns about pre-existing conditions or insurability, as well as vesting schedules of qualified pension plans, are critical factors to an employee who entertains a more lucrative employment opportunity elsewhere. Some insurance and brokerage firms stress the portability of their programs.
Portfolio: The combined security holdings of an individual investor or mutual fund. The objective of holding investments in a portfolio is to reduce risk through diversification.
Power of Attorney: During lifetime a grantor may wish to authorize someone full or limited power to perform specified acts or make decisions. A power of attorney gives this power in a document usually drafted in accordance with state law. The power terminates at the death of the conveyor.
Preferred Stock: A security representing partial ownership, also called equity, in a corporation. Preferred stock does not confer voting rights, as does common stock, but takes precedence in claims against the company’s profits and assets.
Premature or Early Distributions: The Internal Revenue Code (IRC) levies penalties for certain distributions before the age of 59½ from qualified retirement plans. The IRC, however, provides some specific exceptions that qualify for premature or early distributions without penalty.
Premium Loan: A loan made from an insurance policy to cover the premiums.
Premium: The periodic payment for an insurance policy.
Prepayment Penalty: On a loan without a prepayment clause, the fee a borrower pays for repaying all or part of the loan before it is due.
Prepayment: The ability to repay installment credit before it is due, or to pay off a loan before its maturity date. Some loans, particularly mortgages, include prepayment clauses allowing you to repay them in advance of the regular schedule without a penalty.
Present Value: Representation of the current value of a future payment or serial payments at scheduled compounding periods with a specific discounting rate of return. Financial advisors may use the phrase "time value of money" while accountants might prefer "discounted cash flows."
Price/Earnings Ratio (P/E): The price of a share of stock divided by earnings per share. The P/E ratio gives financial analysts and investors the relationship between the price of a stock and its underlying value. Generally, the higher the P/E ratio the increased potential of risk.
Primary Beneficiary: The named beneficiary who receives the proceeds of an insurance policy or annuity contract when the insured or annuitant dies.
Prime Rate: Prime rate is a standardized short-term borrowing rate established by the Federal Reserve Board. Most banks use the prime rate and base the loan on the creditworthiness and collateral of bank customers (e.g., prime plus 1% or prime plus 2%).
Principal: The face value of a loan, separate from the interest, due at maturity.
Private Mortgage Insurance (PMI): Protects the lender in case of default. Lenders typically require borrowers to purchase PMI when the loan-to-value ratio is greater than 80%.
Private Ruling Letter: Upon request, the Internal Revenue Service (IRS) may issue an interpretation of a tax situation with a private ruling letter judgment. Private letter rulings are nonbinding and not a precedence for individuals with seemingly similar circumstances.
Profit and Loss Statement: The balance statement and the profit and loss statement usually reflect a company’s financial condition. Because profits and losses relate to revenue inflows from business operations, a profit and loss statement is an income statement.
Profit Sharing: A defined contribution plan in which employers allow employees to share in company profits. The employer’s contribution may vary from year to year with no minimum required. Funds generally accumulate on a tax-deferred basis until the employee leaves the company or retires. An employee’s retirement benefit depends on the amount in his or her account at retirement.
Prohibited Transaction: An individual retirement account (IRA) transaction forbidden by the Internal Revenue Code. Examples of prohibited transactions include borrowing against an IRA, using an IRA as collateral, and investing IRA funds in collectibles.
Property: Anything that has a value and is owned is termed property. It may be tangible or intangible (incorporeal), personal or public, or common.
Prospectus: A formal written sales document providing relevant details about an individual security or mutual fund.
Qualified Plan: A pension meeting the requirements of Section 401(a) of the Internal Revenue Code, and eligible for tax-favored treatment.
Quotation: The highest bid and lowest offer (asked) price currently available for a security. For example, an investor requesting a price on XYZ Company might be quoted "40 to 40 1/2." This means that the best bid price (the highest price any buyer will pay) is currently $40 a share, and the best offer price (the lowest price any seller will accept) is $40.50.
Rate of Return: For stocks, the rate of return is the dividend and capital appreciation. The yield is the rate of return on fixed-income securities. Analysts use the return on equity to compare the rates of return on differing investment vehicles. Accountants use internal rates of return when reviewing investment contracts, budgets, or investment opportunities.
Rated Policy: Also called an "extra risk" policy. A rated policy covers a higher risk for a higher-than-usual premium. For example, an insured person with a dangerous occupation or impaired health condition often has a "rated" policy that costs more to protect the insurer from added risk.
Real Estate Investment Trust (REIT): A company that manages a portfolio of real estate investments for shareholders.
Recalculation: A method of determining an individual retirement account (IRA) holder’s life expectancy for purposes of calculating the required minimum distribution. The holder’s current age is compared to Unisex Tables to determine a life expectancy for each year requiring a distribution.
Recapitalization: When a company changes its capital structure to reduce taxes by exchanging preferred stock for bonds or to avoid or emerge from a bankruptcy. Often, new debt (e.g., reorganization bonds) is issued to replace existing debt.
Redemption: The repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.
Registry of Deeds: The location, in some states, where deeds are recorded and filed.
Required Minimum Distribution (RMD): The minimum annual distribution individual retirement account (IRA) holders must take upon reaching age 70 1/2. IRA holders must begin taking minimum distributions by April 1 of the year after they reach 70 1/2.
Revenue Procedure: The administrative practices of the Internal Revenue Service are outlined for taxpayers who wish to understand the methods for gaining information or decisions concerning specific tax laws and rulings.
Revenue: Total sales from goods and services, before expenses and taxes.
Reverse Mortgage: A loan on home equity. The lender makes regular tax-free payments to the homeowner for life.
Risk Tolerance: An investor’s willingness or ability to withstand a drop in an investment’s value.
Risk: The possibility an investment’s actual future return will be below its expected return.
Rollover: A tax-free transfer of funds from one retirement plan to another. Funds from an individual retirement account (IRA) may be shifted to another IRA, while distributions from a qualified retirement plan may be transferred to an IRA or another retirement plan.
Roth IRA Conversion: The process of converting an existing IRA into a Roth IRA. Roth conversions have specific income eligibility requirements and income tax consequences.
Roth IRA: A savings mechanism in which contributions are nondeductible, the funds grow tax-free, and withdrawals are tax-free provided certain conditions are met. The Taxpayer Relief Act of 1997 created Roth IRAs for individuals who do not qualify for traditional IRAs due to their income level or participation in employer-sponsored retirement plans.
S Corporation (Subchapter S of the Code): An incorporated business that is a "pass-through" entity for tax considerations. S corporations have similar legal status to C corporations: limited liability, avoidance of double taxation, and continuity of business in succession transfers However, the maximum number of shareholders may only be 75.
Salary Reduction Plan: A qualified retirement program in which employees make tax advantaged contributions on a pre-tax basis.
Sale and Leaseback: A company may sell its own debt-free property (long-term asset) to acquire working capital. After the sale, the former owner leases the property. The company has not acquired more debt, but has added cash to expand inventories, research and development, plant equipment, or machinery, or as a less expensive means to acquire cash. The sale of the long-term asset also avoids adding debt to the company’s statements of financial condition.
Savings Account: An account with a bank or savings and loan company that pays interest on money deposited.
Savings Bonds: Non-marketable debt securities issued by the U.S. Treasury Department that are backed by the full faith and credit of the federal government. They are considered low risk, and the interest income is generally not subject to state or local taxes.
Section 162 (Executive Bonus) Plan: The Internal Revenue Code Section 162 provides employers a deduction for trade or business expenses. A company may insure the life of a key (executive) employee and pay premiums as a deductible bonus for personal services actually rendered. Premiums are taxable to the employee. Unlike split-dollar arrangements, the employer never recovers the outlay and has little control over the fringe benefits provided.
Secured Card: A credit card guaranteed by a deposit in a savings account or certificate of deposit (CD). The credit line usually equals the deposit. If a cardholder defaults on payments, the issuer may apply the deposit toward the balance owed.
Securities and Exchange Commission (SEC): The federal agency that regulates activity in the securities markets, and protects the public against malpractice by broker-dealers.
Security Deposit: A type of payment usually required of an individual wishing to secure a personal loan, a rental property, or to guarantee a later purchase.
Self-Directed IRA (SDA): An individual retirement arrangement allowing a holder a wider choice of investments, including stocks, bonds, mutual funds, and money market funds. SDAs may be opened at institutions with trust powers, state FDIC-insured institutions, federal credit unions, and federally-chartered savings banks or savings and loans.
Self-Employment Tax: Social security tax imposed on self-employed individuals. The self employed need to file a special Computation of Social Security Self-Employment Tax (Schedule SE) with their annual Individual Income Tax Return Form 1040.
Seller Financing: A "creative financing" technique in which an owner sells property, usually real estate, to a buyer. This technique is often used if the market interest rates are too high for the buyer and the seller does not require principal from the sale. The title or deed transfers only at full payment of the loan and any foreclosure results in the property reverting to the seller. Seller financing was very popular during the 1980s when real estate values escalated. Buyers used seller financing to arrange "no money down" purchases of real estate.
Settlement Costs: Also called closing costs. The expenses involved in transferring real estate to a buyer from a seller. Typically includes fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Does not include points and the cost of private mortgage insurance (PMI).
Share: A unit of equity ownership in a corporation or mutual fund. Corporate shares are represented by stock certificates.
SIMPLE Plan: Savings Incentive Match Plans for Employees. A retirement plan that can be set up as a 401(k) or IRA, and allows employee pre-tax contributions and mandatory employer matching contributions. All contributions are immediately vested in a SIMPLE plan.
Simplified Employee Pension Plan (SEP): A retirement plan for small businesses allowing both an employer and an employee to contribute to the employee’s individual retirement account (IRA), subject to special rules on eligibility and contributions.
Situs: The location or position of a property. For intangible property, such as debt, the situs is probably the jurisdiction in which the debt obligation was issued.
Small Business Association (SBA): A federal government organization that assists small businesses in providing programs and opportunities to hasten their potential growth and success.
Smart Card: Unlike a debit, charge, or AMT card, the smart card requires a prepayment of a specified amount for the future purchase of goods, services, or admissions. Smart card holders may use the card without debiting a checking account or adding balances to a charge card. Banks, hotels, recreational facilities, and other businesses provide smart card privileges to their customers and guests.
Social Security Tax: Since inception, the Social Security system has been funded by a Social Security Tax paid by both employers and employees. These levies are deposited in trust funds for investment. At various optional retirement ages, employees may qualify for fixed income payments based on marital status, quarters employed, and wages earned. The self-employed worker has a different contribution schedule, but has equal treatment on all distributions at retirement or disability.
Split-Dollar Life Insurance: A contractual arrangement between employer and employee sharing obligations and benefits of a life insurance policy. The shared arrangement may govern the payment of premiums, death proceeds, cash values, dividends, or ownership.
Spousal IRA: An individual retirement arrangement for a nonworking spouse funded with contributions from the working spouse. The Internal Revenue Service sets a limit on the combined amount a married couple may contribute to a traditional and spousal IRA.
Standard & Poor’s 500 Index (S&P 500): An index of 500 of the most widely held common stocks on the New York Stock Exchange (NYSE). It is used as a measure to indicate the overall health of the US stock market.
Statement: A record of activity on a customer account, generated periodically by a bank or credit card issuer.
Stock Certificate: A document indicating legal ownership of shares of stock in a corporation. Stock certificates are made out to the shareholder or the brokerage firm, and identify the issuer, the number of shares, the par value, and the stock class. A stock certificate must be endorsed by the shareholder to sell the shares.
Stock Market: A general term referring to the organized trading of securities in the various market exchanges and the over the counter (OTC) market.
Stock Purchase Plan: A mechanism for employees to purchase company stock. Increasingly, companies are encouraging employee participation in ownership opportunities. Employees may purchase company stock in Employee Stock Ownership Plans (ESOPs); Dividend Reinvestment Plans (DRIPs); stock options; automatic investment plans; and other creative plans. In theory and practice, employees have the potential of becoming majority stockholders through participation in a stock purchase plan, assuming a viable role in corporate planning.
Stock Split: A distribution of additional shares to each stockholder in proportion to the shares the individual already owns. A stock split has no immediate effect on a stockholder’s equity. For example, if a stock splits 2-for-1, a shareholder who owns one share with a $100 par value before the split, would own two shares, each with a $50 par value, after the split.
Stock: A security representing partial ownership, also called equity, in a corporation. Each stock share represents a proportionate claim against the company’s profits and assets. Common stock entitles shareholders to participate in stockholder meetings and to vote for the board of directors. Preferred stock does not confer voting rights, but takes precedence in claims against profits and assets.
Straight-Term Mortgage: A mortgage in which the borrowed amount is due at the conclusion of a term, or maturity date.
Subsidized Loan: An education loan on which the federal government pays the interest before the repayment period begins, and also during authorized deferment periods after payment begins.
Survivorship Life Insurance: Also called second-to-die or last-to-die insurance. Survivorship life insurance covers the lives of two people, and pays benefits when the second person dies. It is often used by couples to fund estate tax liability.
Tangible Asset: A tangible asset has a value and physically exists. Land, machines, equipment, automobiles, and even currencies, are examples of tangible assets. On some financial statements, however, a nonmaterial item may often be listed as a tangible asset, such as, a payment to be made on products or goods already delivered.
Tax Credit: A tax deduction reduces tax liability by the percentage of the marginal tax bracket for the taxpayer, while a tax credit reduces the taxable amount due dollar-for-dollar. In many cases, tax credits offer incentive to support social change (e.g., renovation of historical property, jobs for the disadvantaged, research and development, and constructing low-income housing).
Tax Deduction: An expense the Internal Revenue Service allows a taxpayer as a reduction against adjusted gross income (AGI). A deduction reduces taxes only by the percent of a taxpayer’s tax bracket. Examples of allowable deductions include charitable contributions, state and local taxes, and some interest expense.
Tax Free: The elimination of income tax liability on accumulated investment earnings.
Tax Lien: A claim against real estate for unpaid taxes.
Taxable Income: Gross income less all allowable adjustments. Incorporated businesses derive net income before taxes after deducting total costs and expenses from gross sales.
Tax-Deductible: Incorporated businesses receive a tax deduction for expenses resulting from the "cost of doing business." For individuals, tax deductions are available to compute adjusted gross income (AGI) and establish the taxable amount due. Some deductions must be in excess of a threshold or floor to qualify as a deduction.
Tax-Deferred: The postponement of taxes on accumulated investment earnings until the investor takes possession of them.
Tax-Exempt Bond: A bond whose interest payments are not subject to tax from federal, state, or local authorities.
Tax-Exempt: Not subject to tax by federal, state, and/or local authorities.
Tax-Sheltered Annuity: Also called a 403(b). A retirement plan under Section 403(b) of the Internal Revenue Code allowing employees of government and nonprofit organizations to make pretax contributions up to a predefined annual limit.
Tenants by the Entirety: Spouses commonly use this form of ownership. Each spouse theoretically owns 100% of the property, but complete ownership will pass at the first death to the surviving spouse without tax and probate.
Tenants in Common: Two or more owners having undivided ownership (not necessarily equal) in property. A tenants in common form of ownership does not have a "right of survivorship" in the event one owner is deceased.
Term Certain: A payout option under an annuity contract that agrees to pay income for a specified period of time.
Term Insurance: Life insurance that pays benefits only when the insured dies within a specific period. If the insured lives beyond the end of the period, no benefits are payable. Term insurance has no cash value and premiums traditionally rise with age.
Time Horizon: Period for which an investor plans to hold investments.
Title Insurance: Protects against loss due to a defect in a real estate title.
Title Search: The inspection of city, town, or county records to determine the legal owner of a piece of real estate.
Title: A document identifying legal ownership of property, and used to transfer it from a seller to a buyer.
Total Disability: A total disability usually means a worker cannot complete most job requirements based on a physical or mental disability. In some cases, total disability is immediate subsequent to the loss of sight or limbs. In other situations, an "elimination" period provides a passage of time to confirm the disability status before an individual receives benefits. Private disability plans, employer group disability benefits, and Social Security will provide a percentage replacement of lost income for gainfully employed workers who are experiencing a total disability.
Total Return: Gross annual yield on an investment or mutual fund, including capital appreciation or distributions, interest, dividends, and personal taxes.
Transaction Fee: A charge for various credit-related activities, such as receiving a cash advance or using an ATM.
Treasuries: The United States Government regularly offers negotiated debt obligations at public auction through the Federal Reserve Bank. Treasuries have varying maturities and yields. Treasury bills have maturities of less than one year; notes less than 10 years; and, bonds less than 30 years. Issued treasuries may be purchased in the public marketplace and reflect current yields to maturities.
Treasury Bill: Also called a T-bill. A short-term security issued by the federal government. Treasury bills have face values ranging from $10,000 to $1 million, and sell at a discount based on current interest rates.
Triple Net Lease: Lease in which the lessee assumes the payments of maintenance and upkeep, taxes, utilities, and insurance. The tenant bears the risks associated with these fluctuating expenses.
Trustee: The party(ies) responsible for managing a retirement plan’s assets for the benefit of the participants.
Underwriting: The process by which an insurance company determines whether, and on what basis, it can assume the risk of a specific life insurance policy.
Unearned Income: Payment received in advance for undelivered products or uncompleted service is unearned income and a current liability on business ledgers. Individual taxpayers must report all income not directly resulting from one’s profession, business, or occupation as unearned income.
Unemployment: When a previously employed worker is "laid off" or involuntarily "not in gainful employment," he or she is considered unemployed and possibly eligible for certain state and federal compensation and benefits.
Uniform Gift to Minors Act (UGMA): Also called Uniform Transfer to Minors Act (UTMA) in some states. Law adopted by most states governing the administration and distribution of assets held in a child’s name.
Uniform Transfer to Minors Act (UTMA): Also called Uniform Gift to Minors Act (UGMA) in some states. Law adopted by most states governing the administration and distribution of assets held in a child’s name.
Universal Life Insurance: Life insurance that allows the holder to vary the amount and timing of premiums, and to change the death benefit.
Unlimited liability: In most limited partnerships, the general partner will collect fees and own a percentage of the partnership (in the form of limited partnership interest).
Unsecured Debt: A debt that is not guaranteed by collateral. If the borrower defaults, the issuer has no assets to back up the loan.
Variable Interest Rate: A rate that fluctuates with a measure or an index, such as current money market rates or the lender’s cost of funds. Often, variable interest rate loans have a fixed rate for several years and then become variable. The borrower is usually protected from dramatic increases in the loan rate by a "rate cap."
Vesting of Employer Contributions: The Internal Revenue Code outlines two minimum vesting schedules for employer contributions for employee benefit plans. Five-year vesting calls for nonforfeiture rights of 100% to employees having completed five years of service in the plan. Three-to-seven year vesting provides cumulative nonforfeiture rights in 20% increments beginning in the third year and commencing with 100% vesting after the seventh year in the plan.
Vesting: A process leading to a future event, at which time, money or property held in trust belongs to a person, but may not be available for distribution until a future date or occurrence. Vesting usually refers to the scheduled confirmation of ownership rights in qualified employee benefit retirement plans.
Volatility: The price fluctuations of a security or mutual fund relative to an appropriate market index. The more volatile a security or mutual fund, the more it is subject to rapid and extreme price fluctuations relative to the market.
Voluntary Employee Contribution: An employee may be permitted to make voluntary contributions, usually unmatched by the employer, in excess of mandatory contributions to his or her plan account. Voluntary employee contributions may be deposited on a pre-tax or post-tax basis, on a pre-arranged basis.
Waiver of Premium: An insurance policy rider that allows a policyholder to stop making premium payments if the insured suffers a permanent disability. Generally, there is an additional cost for this rider to become part of a policy.
Whole Life Insurance: Life insurance that provides coverage for the insured’s entire life, provided the policyholder continues to pay the premiums. Premiums generally remain level for the life of the contract. In addition, there is also a cash value component that can be used to help supplement future financial needs.
Withholding: An employer deducts a portion of employee wages, usually for income taxes. Employers base the withholding amounts on the Form W-4, Employee’s Withholding Allowance Certificate, that employees submit when commencing employment. A Treasury account at a bank is the repository for withholding amounts and is a credit toward future tax liability for the calendar year.
Working Capital: During the business life cycle, working capital or money ensures that the business will be able to operate on a daily basis.
Yield To Maturity (YTM): The return an investor will receive if a long-term interest-bearing investment, such as a bond, is held until the date it becomes due and payable (maturity date).
Yield: The return received from an investment.
Zero Coupon Bond: A bond that makes no periodic interest payments, but rather sells at a deep discount from its face value.