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Retirement Planning Lingo – 401k’s, Pensions, & Other Terms To Know

Retirement Planning Lingo

Medicare? Immediate annuities? Reverse mortgages? Retirement may mean you have stopped working, but it doesn’t mean you stop learning. Here are the most common retirement terms and what they mean for you.

401(k):
An employer-sponsored retirement savings plan. Contributions made to a 401(k) plan are tax-deferred.
Area Agency on Aging (AAA):
A network of local organizations that provide a wide variety of information and programs for seniors. You can learn more about Area Agencies on Aging online.
AARP:
The Association for the Advancement of Retired Persons. The AARP provides information, services, discounts, and insurance for people over 50 in America. Visit the AARP online for senior citizen resources.
Annuity:
A contract sold by a life insurance company that provides regular monthly income in return for an initial lump sum deposit. Whereas life insurance provides a benefit after death, annuities provide benefits for a living insured person. Annuities are considered reverse mortgages or insurance.
Defined Benefit Plan:
A pension plan that guarantees a set retirement benefit. Traditional employer-paid or company pension plans are included in this category.
Defined Contribution Plan:
A retirement savings plan that requires a set amount of contributions and does not guarantee a specific benefit. This includes company-sponsored, employee-paid 401(k) plans. These kinds of retirement plans are now more popular than defined benefit plans.
Estate:
A legal term meaning the combination of all your assets (investments, savings, and real estate) and your liabilities (debts and loans) at the time of death.
Estate Planning:
Planning for the distribution of your assets after death. This includes establishing a will, passing down money, setting up trusts, and minimizing estate taxes.
Generation-Skipping Transfer:
A trust that allows grandparent’s to give money to their grandchildren. IRS form 706 allows grandparents to transfer up to $1 million (or $2 million for a couple) to grandchildren without any estate taxes through a GST.
Gift Tax Exclusion:
Current tax law allows you to gift up to $12,000 tax-free each year to any individual (such as a child or grandchild). You can gift up to this limit as many times each year as long as the funds go to different people.
Home Equity Line of Credit:
An open-ended loan that is backed by the part of a home’s value that the borrower owns outright. This type of loan is used much like a credit card. Home equity lines of credit can be effective ways to borrow large sums of money with a relatively low interest rate. You can apply for a home equity loan online here. These types of loans should be used with caution. If a borrower is unable to pay back the loan for some reason (loss of job, illness, etc.) they risk loosing the home they used as collateral.
Immediate Annuity:
An annuity where the payments begin immediate after the policy purchase. Immediate annuities are usually considered a good way to ensure retirement income for the rest of your life.
IRA:
An Individual Retirement Account. A type of savings account that offers tax benefits for setting aside money for retirement. A traditional IRA is tax-deferred. A Roth IRA is contributed to with after-tax dollars.
Lifetime Gift Tax Exemption Limit:
You can give away up to $1 million in taxable gifts in order to reduce your estate tax. If you exceed this limit, you’ll be taxed significantly on the overage amount. Many forms of gifting are not counted toward this exemption limit.
Living Will:
A legal document that defines a person’s decisions about the use of artificial life support systems. A “Do Not Resuscitate” form is a living will.
Long Term Care Insurance:
A specific type of health insurance designed to cover the cost of nursing homes, skilled nursing, or custodial care.
Keogh Plan:
A tax-deferred retirement savings plan designed for self-employed workers.
Medicaid:
A federally-sponsored, state-run public assistance program designed to assist low income/asset people with their health care costs. Medicaid covers medications, tests, and nursing home services to qualified individuals.
Medicare:
A federal health insurance program that covers people over the age of 65 and the disabled. Medicare Part A covers hospital costs and Part B covers medical expenses.
Pension:
A retirement plan (usually sponsored by an employer) that provides a retired person with a secure income for life.
Reverse Mortgage:
A mortgage that allows elderly borrowers to access their equity without selling their home. The lender makes payments to the borrower with a reverse mortgage. The loan is repaid from the proceeds of the estate when the borrower moves or passes away.
Savings Bonds:
Savings Bonds are the most popular type of security in the world for a reason! Bonds are free from most taxes and increase in value monthly. Plus, you can receive extra benefits if the bond is redeemed to pay for college expenses. You can compare different kinds of bonds online at SavingsBonds.gov.
Supplemental Security Income:
A federal Social Security program that provides monthly income to people with little or no income who are over the age of 65 or disabled. SSI is designed to provide funds for food, clothing, and shelter.
Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA):
You can make gifts to a custodial account set up by parents of a child under 18. Gifts to a custodial account are counted as taxable income to the grandchild, however. You can gift cash, investments, real estate, and more through these accounts. Speak to an investment advisor before opening this kind of account, as there are a few potential traps to avoid.
Will:
A legal document that specifies how you would like your property to be distributed after you pass away. A will defines who will manage the estate (executor) and who will receive your estate after you die (beneficiaries).


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