Retirement planning is easier when you understand the language. Here are many of the key terms you will encounter as you plan for your post-career life.


An employer-sponsored retirement plan into which you make regular pretax contributions that grow tax deferred until withdrawn at retirement. Your employer may match a percentage of your contributions.

Adjusted Gross Income

Gross income minus allowable deductions – used to determine income tax liability


A financial product provided by an an insurance company. After you have invested in this product, and depending on the terms, the company makes  periodic payments to you, often for the rest of your life. Annuities may provide for other payments, as well, such as a death benefit.

Asset Allocation

The mix of stocks, bonds and cash in your investment portfolio, expressed as a percentage by asset class


A person or entity you choose to receive your assets if you pass away – typically your spouse or child. ​

Compound Interest

Interest calculated on both the principal and any earned interest. 

Defined-Benefit Pension

An employer-provided retirement plan based on a combination of salary and years worked. This type of pension is now rare. 

Defined-Contribution Plan

A qualified retirement plan into which you contribute funds and control investments. Your employer may contribute to this plan. 

Direct Rollover

Moving funds from a qualified retirement plan to an individual retirement account (IRA) without them going through you. 


When funds are taken out of a retirement plan. 


Reducing risk by investing in a variety of industries, sectors or companies

Dollar-Cost Averaging

Investing a fixed amount of money in securities (stocks or mutual funds) at set intervals, such as monthly.

Early Withdrawal

Taking funds out of a retirement plan before the age of 59½, typically subject to a penalty

Earned Income Rule

The requirement that you have earned income (wages, salaries, bonuses, tips, commissions or taxable alimony) to contribute to an IRA. 

Employer Match

The amount your employer contributes to your 401(k), typically designed to match a percentage of your own contributions. 

Excess Contribution

Exceeding the maximum allowed annual contribution to your retirement account, resulting in penalty taxes. 

Federal Deposit Insurance Corporation (FDIC)

A government agency that maintains the stability of the country’s financial system by insuring deposits, supervising financial institutions and providing consumer protection. 

Individual Retirement Account (IRA)

An individually sponsored retirement-savings program into which you contribute funds on a tax-deferred basis. Your investment grows tax free until you begin withdrawals at retirement. 

Lifestyle Fund

A mutual fund with an asset allocation that fits a risk profile chosen by you. Typical choices from least to most risky are conservative, moderate, balanced and aggressive. 

Lump-Sum Distribution

A distribution of all funds in your retirement account in one year.

Mutual Fund

A mix of stocks, bonds and other types of investments held by you and other investors and managed by a mutual fund company. 

Qualified Retirement Plan

Any retirement plan that receives special tax treatment by meeting the requirements of the Internal Revenue Code


Treating a contribution to one type of IRA as if it had been made to another type of IRA. 

Required Minimum Distribution (RMD)

The minimum amount you must withdraw from your retirement account beginning after the age of 70½ as required by the Internal Revenue Service (IRS). 


Tax-free movement of funds from one type of retirement account to another. 

Roth 401(k)

A type of 401(k) in which contributions are made after taxes and distributed, along with earnings, tax free, beginning at retirement. 

Roth IRA

A type of IRA funded by contributions made from after-tax income (such contributions, by definition, are not tax deductible). Earnings may be withdrawn tax free subject to IRS guidelines. Contributions may be withdrawn tax free at any time.

Roth IRA Conversion

The movement of assets from a traditional IRA into a Roth IRA


Tax-free movement of funds between two retirement funds of the same type.

Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)

An IRA for employees of small businesses with 100 or fewer employees or for self-employed individuals. 

Self-Directed IRA

An IRA that lets you select your own investment options, including stocks, bonds, mutual funds, real estate and other alternative investments

Simplified Employee Pension IRA (SEP IRA)

An employer-sponsored retirement plan for self-employed individuals or owners of small businesses. 

Substantially Equal Periodic Payments (SEPP)

An early distribution from an IRA consisting of equal payments over your lifetime that are not subject to a tax penalty.

Target-Date Fund

A type of mutual fund (also known as a life-cycle fund) that tries to match your investments to a time frame with decreasing risk as you get older. 

Tax Deferred

An arrangement that postpones taxes until the funds are distributed at retirement. 


A legal entity that lets you specify how your assets will be distributed when you pass away. ​ 


When you own all the contributions made by your employer in your retirement plan. Vesting follows a schedule based on the number of years you work at your job. 

(For more information, see extended definitions for these and other terms at Retirement Plan Terms.)