Definitions

B Bond

A debt investment, which involves an investor loaning money to a company or government for a defined period of time while the lender earns interest

C CD (Certificate of Deposit)

A savings certificate that has a maturity date and a fixed interest rate. It can be issued in any denomination.

E Employee Contribution

(also called employee deferral or salary deferral) - money deducted from a participant's paycheck on a pre-tax basis to invest in the retirement plan.

E Employer Contribution

Money that will be contributed to a plan participant's account by their employer.

M Money Market Fund

A mutual fund that invests in short-term debt instruments.

M Mutual Fund

A fund that gives individual investors -- through pooling their money with other investors -- access to a well-diversified portfolio of equities, bonds or other securities.

Q Qualified Retirement Plan

A retirement plan which meets specific requirements of the Internal Revenue Code and receives special tax treatment. A 401(k) plan is a type of qualified retirement plan.

S Stock

A type of security, representing ownership in a corporation that can rise or fall in value

IRA

Traditional IRA

A traditional IRA can give you an up front tax-deduction and is always tax-deferred.

Contributions are tax-deductible in some cases

Contribution limit is $4,000 ($5,000 if you're over 50)

10% tax penalty may apply to withdrawals before age 59 1/2

ROTH IRA

A ROTH IRA can provide tax-free income in retirement.

Contributions are not tax-deductible

Contributions may be withdrawn tax-free

Qualified distributions are tax-free (A distribution is qualified if it is taken at least five years after you established your first Roth IRA and when you are at least age 59.5, disabled, using the withdrawal to purchase a first home (limit $10,000), or deceased.

Contributions are limited by your income

Contribution limit is $4,000 ($5,000 if you're over 50) [Plan Year 2007]

10% tax penalty may apply to earnings withdrawn before age 59

Withdrawals of taxable amounts will be subject to ordinary income tax and, if taken prior to age 59 1/2, a 10% IRS tax penalty may apply. For plan sponsors. If you are a business owner, providing a 401(k) can be a great incentive for attracting and retaining top employees.