Individual Financial Planning, LLC.

Qualified Plan: A qualified plan is a retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code, one that is, therefore, eligible for tax-favored treatment.

 

Quotation: The quotation refers to 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 40½.” 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: The rate of return is the gain or loss of an investment over a specified period of time, expressed as a percentage increase over the original investment cost. 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 REIT is a security that sells like a stock on the major exchanges and invests primarily in real estate through properties and mortgages.

 

Recapitalization: Recapitalization occurs when a company changes its capital structure by exchanging preferred stock for bonds to reduce taxes or to avoid or emerge from a bankruptcy. Often, new debt (e.g., reorganization bonds) is issued to replace existing debt.

 

Redemption: Redemption is the repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.

 

Required Minimum Distribution (RMD): The RMD is the legally required minimum annual amount that must be distributed from a retirement account to an IRA holder or qualified plan participant. RMDs, which are calculated by dividing the year-end account balance by the applicable distribution period or life expectancy, must begin by April 1 of the year following that during which the individual reaches age 70½.

 

Revenue: Revenue is the amount of money that a company receives during a given period from the sale of goods and services, before expenses and taxes.

 

Risk: Risk refers to the quantifiable likelihood of loss or less-than-expected returns. For example, U.S. savings bonds, which are backed by the full faith and credit of the federal government, are considered low risk, where as junk bonds, which are issued by companies with questionable credit, are generally considered high risk. Historic or average returns are often used to measure risk.

 

Risk Tolerance: Risk tolerance is the measurement of an investor’s willingness or ability to handle declines in the value of his or her investment portfolio. For many investors, risk tolerance is an important consideration when developing a diversification strategy for a portfolio.

 

Rollover: A rollover is a tax-free transfer of funds from one retirement plan to another.

 

Roth IRA: A Roth IRA is a type of Individual Retirement Account (IRA) in which contributions are nondeductible. Earnings grow tax deferred, and distributions are tax free, provided you have owned the account for five years and are at least age 59½. 

 

Roth IRA Conversion: This refers to the process of converting an existing IRA into a Roth IRA. Roth conversions have specific income eligibility requirements (through 2009) and income tax consequences.

 

S Corporation (Subchapter S of the Code): An S corporation is an incorporated business that is a "pass-through” entity for tax purposes.

 

Salary Reduction Plan: A salary reduction plan is any qualified retirement program in which employees make tax advantaged contributions on a pre-tax basis.

 

Savings Account: A savings account is an account with a bank or savings and loan company that pays interest on money deposited.

 

Section 162 (Executive Bonus) Plan: Internal Revenue Code Section 162 provides employers a deduction for trade or business expenses. Through this executive bonus plan, the employee owns a life insurance policy for which the employer pays premiums. Premiums are taxable to the employee.

 

Secured Card: A secured card is 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 SEC is the primary federal regulatory agency for the securities industry, whose responsibility is to promote full public disclosure and protect investors against fraudulent and manipulative practices. In addition to regulation and protection, it also monitors corporate takeovers in the US. The SEC is composed of five commissioners appointed by the president and approved by the Senate.

 

Security Deposit: A security deposit is a type of payment usually required of an individual wishing to secure a personal loan, a rental property, or a later purchase.

 

Self-Directed IRA (SDA): A self-directed IRA is an individual retirement arrangement that allows 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: The self-employment tax is a 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: Seller financing is a “creative financing” technique in which an owner sells property, usually real estate, directly 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, these are the expenses involved in transferring real estate to a buyer from a seller. Settlement costs typically include fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Closing costs do not include points and the cost of private mortgage insurance (PMI).

 

Share: A share is a certificate representing one unit of ownership in a corporation, mutual fund, or limited partnership.

 

SIMPLE (Savings Incentive Match Plan for Employees) Plan: A SIMPLE Plan is a retirement plan, which can be set up as a 401(k) or IRA, that 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 SEP is a retirement plan allowing both an employer and an employee to contribute to the employee’s Individual Retirement Account (IRA) on a discretionary basis, subject to special rules on eligibility and contributions.

 

Situs: The term situs refers to the location or position of a property. For intangible property, such as debt, the situs is generally the jurisdiction in which the debt obligation was issued.

 

Small Business Association (SBA): The SBA is 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, which is 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 he or she has equal treatment on all distributions at retirement or disability.

 

Split-Dollar Life Insurance: A split-dollar life insurance agreement is 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: A spousal IRA is 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): The S&P 500 is 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.

 

Stock: A stock is 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 it takes precedence in claims against profits and assets.

 

Stock Certificate: This document substantiates the legal ownership of shares of stock in a corporation. Stock certificates are made out to the shareholder or the brokerage firm, and they 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: The stock market is 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 stock purchase plan is 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 stock split is 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.

 

Straight-Term Mortgage: A straight-term mortgage is a mortgage in which the borrowed amount is due at the conclusion of a term, or maturity date.

 

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 refers to anything that 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 credit reduces a taxpayer’s taxable amount due dollar-for-dollar. A $1,000 tax credit saves the taxpayer $1,000 in taxes. 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: A tax deduction reduces tax liability by the percentage of the marginal tax bracket for the taxpayer. For example, a $1,000 tax deduction for a taxpayer in the 25% marginal tax bracket saves only $250 in tax (0.25 x $1,000). Allowable deductions include charitable contributions, state and local taxes, and some interest expense.

 

Tax Lien: A tax lien is a claim against property for unpaid taxes (including city, county, school, estate, income, payroll, property, or sales taxes). A tax lien, which lasts until the claim is satisfied or a statute of limitations takes effect, may make other creditors aware of a delinquent’s tax liability.

 

Tax-Exempt Bond: A tax-exempt bond is a bond issued by a municipal, county, or state government whose interest payments are not subject to tax from federal, state, or local authorities.

 

Tax-Sheltered Annuity: This type of annuity, often called a TSA, allows employees of government and nonprofit organizations to make pretax contributions to a retirement plan, up to a predefined annual limit.

 

Taxable Income: Taxable income is a taxpayer’s gross income less all allowable adjustments. Incorporated businesses derive net income before taxes after deducting total costs and expenses from gross sales.

 

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 are referred to as tenants in common. This form of ownership does not have a “right of survivorship” in the event that one owner dies.

 

Term Certain: In terms of an annuity contract, the term certain is a payout option that provides income for a specified period of time.

 

Term Insurance: Term insurance is a type of 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: The time horizon is the projected length of time for which an investor plans to hold investments.

 

Title: A title is a document that identifies legal ownership of property, and it is used to transfer ownership from a seller to a buyer.

 

Title Insurance: Title insurance is a form of insurance that protects against loss due to a defect in a real estate title, such as an ownership dispute or a lien against property. A mortgage lender generally stipulates that a borrower must purchase a title insurance policy.

 

Title Search: A title search is the inspection of city, town, or county records to determine the legal owner of real estate property, as well as any applicable liens, mortgages, or future interests.

 

Total Disability: For insurance purposes, this classification indicates that 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: Total return is defined as the gross annual yield on an investment, including capital appreciation or distributions, interest, dividends, and personal taxes.

 

Transaction Fee: A transaction fee is a charge for various credit-related activities, such as receiving a cash advance or using an ATM.

 

Treasuries: Treasuries are negotiated debt obligations that the United States government regularly offers 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 ten 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 treasury bill is a negotiable debt obligation, which is issued by the federal government and backed by its full faith and credit, has a maturity of one year or less, and is exempt from state and local taxes. Treasury bills have face values ranging from $10,000 to $1 million, and they sell at a discount based on current interest rates.

 

Triple Net Lease: A triple net lease is a 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: A trustee is an individual or party responsible for managing a trust on behalf of a beneficiary or beneficiaries. Duties often include holding title to property, distributing assets, and overseeing investments and payments.

 

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