Tull Financial Group Glossary Terms
a tax-advantaged, defined-contribution retirement account where contributions can be made automatically through payroll. This is offered by many employers to their employees.
a tax-advantaged retirement account for employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, librarians, government employees, nurses, and doctors.
non-qualified, tax-advantaged, deferred compensation retirement plans offered by state governments, local governments, and some tax-exempt employers. Individuals who are eligible may make salary deferral, meaning they can deposit pre-tax money that can compound tax free until withdrawn.
529 College Savings
tax-advantaged accounts that can be used to pay for qualifying educational expenses from kindergarten all the way to graduate school. A 529 can be a savings plan or a prepaid tuition plan, but the rules and regulations differ by state.
Uniform Transfers to Minors Act (UTMA) permits a minor to accept gifts—such as money, patents, royalties, real estate, and fine art—without the involvement of a guardian or trustee. A UTMA account allows the gift giver or an appointed custodian to manage the minor’s account until the latter is of age (18 or 21). UTMA also shields the minor from tax consequences on the gifts, up to a specified value.
Individual Retirement Account (IRA)
(IRA) is a tax-advantaged investment account that individuals use to set aside money for retirement savings. There are different types of IRAs: Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs
also known as a beneficiary IRA, is an account that is opened when an individual inherits an IRA or employer-sponsored retirement plan after the original owner is deceased..
allows a working spouse to contribute to an individual retirement account (IRA) that is in the name of a non-working spouse not earning income or very little income. The income of the working spouse must equal or exceed the total IRA contribution made on behalf of both spouses.
a unique hybrid retirement savings plan that combines many of the best features of traditional 401(k) plans and Roth IRAs. Employee payroll contributions are made using after-tax dollars with no income limitations to participate.
an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. Roth IRAs are similar to traditional IRAs, with the biggest distinction between the two being how they’re taxed. Roth IRAs can be funded with after-tax income and those contributions are not tax-deductible.
Stock Option Plan
Employee stock options (ESOPs) are a type of equity compensation provided by companies to their employees and executives. Instead of giving employees shares of the company stock, they are given derivative options of the company’s stock.
a retirement plan for self-employed individuals, typically with higher contribution limits.
a type of retirement plan put together by small businesses and those who are self-employed as a benefit for their employees and themselves. Employers can also make tax-deductible contributions for their employees to their SEP IRAs.
a financial vehicle comprised of money pooled from a collection of investors that is invested in securities with a target sector or strategy. Mutual funds are managed by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors.
Exchange Traded Fund (ETF)
(ETF) are a collection of securities – such as stocks – that track an underlying index. They may invest in any various industry sectors or use different strategies. ETFs are similar to mutual funds, but they are listed on exchanges and ETF shares trade throughout the day much like traditional stock.
Certified Financial Planner
an individual that has received a formal designation from the Certified Financial Planner Board of Standards, Inc. CFPs help individuals with managing their finances in a variety of sectors such as retirement, investing, education, insurance, estate, and taxes.
Certified Senior Advisor (CSA)
(CSA) are professionals, who in the course of their practice, apply multidisciplinary knowledge of the aging process and aging issues to identify the most appropriate options and solutions for the individual needs of seniors and that are in their best interests in order to help improve their lives.
an opportunity to have a dialogue about the family’s financial goals in a safe space with their advisor.
someone who is compensated solely by what he or she charges directly to clients, and not from the commissions earned from the sale of financial products or financial transactions. Fee-only include transparency, no hidden fees, and seek to remove bias due to conflicts of interest to sell a certain product line or company offering.
is a professional association for U.S.-based, fee-only financial advisors. Formed in 1983, NAPFA requires its members to adhere to the organization’s code of ethics and take an annual fiduciary oath. Members must provide independent, objective financial advice to their clients and uphold the highest standards in the financial planning profession.
Required Minimum Distributions (RMD)
(RMD) is the amount of money that must be withdrawn from a traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age. Calculated upon the age of maturity as stated by government regulation to be spent down over the remainder of one’s life.
Tax Loss Harvesting
is the selling of securities at a loss to offset a capital gains or income tax liability. Typically this strategy is employed to limit the recognition of short-term capital gains. Tax-loss harvesting is also known as “tax-loss selling.”
Coronavirus Aid, Relief, and Economic Security Act (CARES)
(CARES) to blunt the impact of an economic downturn set in motion by the global coronavirus pandemic. The law was signed by President Trump on March 27, 2020. With most forecasters predicting that the U.S. economy was headed toward a recession, or perhaps already in one, congress put together legislation that dedicates a historic amount of funding for large and small businesses, multiple industries, individuals, families, even gig workers and independent contractors as well as hospitals.
(Setting Every Community Up for Retirement Enhancement Act) was passed by the House in July 2019 but wasn’t approved by the Senate until Dec.19, 2019, when it became a part of the end-of-year appropriations act and tax measure which was signed by President Donald Trump on December 20, 2019. The expansive bill has provisions that are aimed at older Americans, preventing them from outliving their assets and increasing their access to tax-advantaged accounts.
a plan, usually prepared by an attorney who specializes in estate law, that organizes and manages an individual’s assets in the event of their death or incapacitation. The planning includes instructions for how assets will be settled among the individual’s heirs as well as the settlement of estate taxes.
are a portfolio of stocks or bonds designed to mimic the makeup and performance of a financial market index. Usually index funds are less expensive and have fewer fees than an actively managed fund.
Active Management Funds
suggests a professional money manager or a team of professionals is actively trading and tracking the performance of a client’s investment portfolio to outperform the overall market by regularly making buy, hold, and sell decisions within the asset portfolio.
an individual or organization that is both legally and ethically bound, who acts on behalf of another person(s), putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust.
Dollar-cost Averaging (DCA)
(DCA) is an investment strategy where the amount to be invested is divided up and used to periodically buy assets, thereby reducing the impact of market volatility on the overall purchase. The purchases occur at regular intervals at a consistent dollar amount; in effect, this strategy removes much of the detailed work of attempting to time the market in order to purchase equities at the best price. This strategy is also sometimes referred to as the constant dollar plan.
an accounting method used to consistently lower the “book value” of a loan or asset over a particular period of time. Amortization focuses on spreading out loan payments over time, so that when it is applied to an asset, it is similar to depreciation.
is the interest on a loan or deposit that is calculated on the initial principal and the accumulated interest from previous periods. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
(environmental, social and governance) defines particular criteria that a mutual fund or ETF company represents that investors will screen for potential investments. These are usually operations where their values are the main focus.
A qualified domestic relations order is a legal document, most often found in a divorce agreement, that recognizes that a former spouse is entitled to receive a predefined portion of the other spouse’s individual retirement plan assets.The QDRO generally grants the spouse 50% of the value that the account accumulated during the marriage. After a distribution is made, the former spouse becomes responsible for any taxes due.
A put option is a contract that gives the owner the right, without the obligation, to sell or short sell a specific amount of underlying security at a predetermined price within a specific frame of time. This predetermined price that the buyer of the put option can sell at is called the strike price.
A financial contract that gives an option buyer the right without the obligation to purchase a stock, bond, commodity or other asset or instrument at a determined price within a specific time frame. The underlying asset can be a stock, bond, or commodity. A call buyer sees a profit when the underlying asset increases in price.
is an option that is bought or sold individually. The option is not part of a spread trade or other types of options strategy where multiple different options are purchased. An outright option can refer to any basic option purchased on a single underlying security. Outright options include calls and puts.
Certificate of Deposit (CD)
is a banking and credit union product that gives an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a specific period of time. Almost all consumer financial institutions offer them, although it’s up to each bank the terms it wants to offer them at, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties it applies for early withdrawal.
a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the “underlying”.
is a basic commercial good that can be exchanged with other goods of the same type. Commodities are mostly used as inputs in the production of other goods or services. Some traditional examples of commodities include oil, natural gas, precious metals, gold, and agriculture.
is the federal government program that provides health care coverage (health insurance) if you are 65+, under 65 and receiving Social Security Disability Insurance (SSDI) for a certain amount of time, or under 65 and with End-Stage Renal Disease (ESRD).
is a United States public health insurance program that provides health care coverage to low-income families or individuals. Medicaid can cover doctor’s office visits, stays at a hospital, long-term and custodial care or other health-related costs.
Long-Term Care (LTC)
insurance coverage that provides nursing-home care, home-health care, and personal or adult medical care for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. LTC insurance is more flexible and has more options than other public assistance programs, such as Medicaid.
is a buy or sell order for a security at a specific price or better. When this is done, the order is executed only at the limit price or lower. For sell limit orders, the order is only executed at the limit price or higher. This type of order gives traders better control over the prices at which they trade.
is a neutral options strategy that involves simultaneously buying both a put option and a call option for the underlying security with the same strike price and the same expiration date.
Profit is gained from this strategy when the price of the security goes up or down by an amount that is more than the total cost of the premium paid. This means profit potential is unlimited, provided the price of the underlying security moves quite sharply.
is an options strategy that is used to protect a trader against large losses, however, it also limits the ability to achieve large gains. A collar position is created by an investor purchasing an out-of-the-money put option while simultaneously writing an out-of-the-money call option. If the price of the stock drops, the put protects the trader. Writing the call produces income (the idea being that this should offset the cost of purchasing the put) which means a trader can profit on the stock up to the strike price of the call, but not higher.
are a type of strategy in investment that mostly apply to fixed-income portfolios. When a barbell method is used, half the portfolio contains long-term bonds and the other half holds short-term bonds. The name “barbell” is used because the strategy looks like a barbell with bonds having the largest weight at either end of the maturity timeline. A graph of this type of strategy will show a large amount of short-term holdings and long-term maturities, but very little in intermediate holdings.
are an investment strategy wherein an investor buys bonds that have different maturity dates so that they can respond quickly to changes in interest rates. This strategy reduces the reinvestment risk that comes with rolling over maturing bonds into similar fixed income products all at once. It also helps manage the flow of money, helping to ensure a steady stream of cash flows throughout the year.
investment securities that pay investors fixed interest or dividend payments until the maturity date. When the security matures, the investor is repaid the principal amount the invested. The most common forms of these securities are government and corporate bonds.
are part of the larger category of U.S. sovereign debt known collectively as treasuries, which are typically considered “risk-free” since they are backed by the U.S. government’s ability to tax its citizens. These bonds earn periodic interest until maturity, at which point the owner is also paid a par amount equal to the principal.
is the face value of a bond. The par value determines the bonds maturity value as well as the dollar value of coupon payments. The market price of a bond could be above or below par, depending on things such as the level of interest rates and the bond’s credit status.
High Yield Bond (Junk Bond)
are bonds that pay higher interest rates due to their lower credit ratings in comparison to investment-grade bonds. Since high-yield bonds are more likely to default, they must pay a higher yield than investment-grade bonds as a way to compensate investors.
Floating Rate Bond
is a bond fund that invests in financial instruments paying a variable or floating interest rate. A floating rate fund invests in bonds and debt instruments that have interest payment that fluctuate depending on the underlying interest rate levels. Normally a fixed-rate investment will have a fairly stable and predictable income. However, as interest rates increase, fixed-rate investments will lag behind the market since their returns stay fixed.
(real estate investment trust) is a company that owns, operates, or finances income-generating real estate. REITs are modeled after mutual funds which pool the capital of several investors. This allows individual investors to earn dividends from real estate investments without having to purchase, manage or finance the properties themselves.
is an alternative investment class that is made up of capital that is not listed on a public exchange. Private equity is made up of funds and investors that invest directly in private companies or that participate in buyouts of public companies, which results in those companies being delisted as public equity. The capital for private equity can be provided by institutions and retail investors, and the money can be used to fund anything from technology, acquisitions, expansion of working capital or even to bolster a balance sheet.
is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over a period of time. When there is a rise in the overall level of prices, which is often presented as a percentage, it means that the currency in question now buys less than it did in a prior period.
is the interest rate, or prime lending rate, that commercial banks charge their most creditworthy customers, generally large corporations. The prime interest rate is mostly determined by the federal funds rate, which is the overnight rate that banks use to lend to one another.
are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds can be managed somewhat aggressively and may use derivatives and leverage in domestic and international markets with an end goal of high returns (either in an absolute sense or over a specified market benchmark).
Donor Advised Fund (DAF)
are registered 501(c)3 organizations that are funded with cash, securities that generally have appreciated in value. All of the contributions are put into an account in the donor’s name, which is held by a DAF sponsor and eventually donated to a qualified 501(c)3 charity of the donor’s choosing.
is a gift of cash or assets made to a nonprofit organization to help it accomplish its goals for which the donor receives nothing of value in return. Up to 60% of a taxpayer’s adjusted gross income may be deducted via charitable contributions.
Qualified Charitable Distribution (QCD)
a direct transfer of funds from an IRA custodian, payable to a qualified charity. As long as certain tax rules are met, QCDs can be counted toward meeting your required minimum distributions (RMDs) for the year.
are a type of dedication that can lower an individual or organization’s tax liability by lowering their overall taxable income. Deductions are usually expenses that the taxpayer incurs during the year that can be applied against or subtracted from their gross income in order to figure out how much tax is owed.
Tax Write Off
is also called a tax deduction and it is an expense that lowers the amount of taxable income you have to claim at tax time. For example, let’s say you made $95,000 last year and have $15,000 in write-offs. This means your taxable income for that year would be $80,000.
is an amount of money that a taxpayer is allowed to subtract, dollar for dollar, from the amount of income taxes they owe. Tax credits are more favorable than tax deductions because they actually reduce the taxes due, not just the amount of taxable income. The three basic types of tax credits are nonrefundable, refundable, and partially refundable.
is the partial distribution of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors. Common shareholders of dividend-paying companies are typically eligible to receive the dividend as long as they own the stock before the ex-dividend date. Dividends can be paid out as cash or may be paid out in the form of additional stock in that company.
have tax-deferred contributions from the income earning individual, and employers match plans may deduct amounts the employer contributes to the plan.
plans that use after-tax dollars to fund investment, and in most cases employers cannot claim their contributions as a tax deduction
Money Market Fund
is a kind of mutual fund that invests in highly liquid, near-term instruments which can include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries). These funds are meant to offer investors high liquidity along with low levels of risk. Money market funds can also be called money market mutual funds.
Limited Liability Company
(LLC) is a business structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities.
are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders in a S corporation report the flow-through of income and losses on their personal tax returns so their tax amount is assessed at their individual income tax rate.
is a legal structure for a corporation where the owners, or shareholders, are taxed separately from the business entity. C corporations, the most common of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creates a double taxation.
Rights of Survivorship
is common with different types of joint ownership of property including joint tenancy and tenancy in common. When jointly owned property includes a right of survivorship, the surviving owner automatically receives a dying owner’s share of the property.
is a legal term stipulating that should a beneficiary predecease the testator—the person who has made out the will—the beneficiary’s share of the inheritance goes to his/her heirs. The term per stirpes is mostly used to refer to an individual’s assets under a will, but occasionally it is used in beneficiary designations for individual retirement accounts (IRAs).
is a term used that means per person. In the legal term regarding a beneficiary, it stipulates that should a beneficiary predecease the testator—the person who has made out the will—the beneficiary’s share of the inheritance goes equally to all the remaining heirs. While the term per capita is commonly used to refer to an individual’s assets under a will, it is sometimes used in beneficiary designations for individual retirement accounts (IRAs).
Revocable Living Trust (RLT)
is a trust whereby provisions can be altered or canceled depending on the grantor or the originator of the trust. During the life of the trust, the income that it earns is given to the grantor, and only once that grantor is deceased does the property in the trust transfer to the beneficiaries of it. Revocable trusts let the living grantor change instructions, remove assets, or terminate the trust.
irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary or beneficiaries. In this gase, the grantor has effectively transferred ownership of the assets in the trust, and has legally removed their own rights of ownership to the assets and the trust.
irrevocable life insurance trust (ILIT) is a trust that cannot be rescinded, amended, or modified, post creation. ILITs are created using a life insurance policy as the asset owned by the trust.
financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. It may also help individuals address the risk of outliving their savings.
provide regular periodic payments to the annuitant, provides a more steady cash flow than a variable annuity.
provide less stable cash flow than a fixed annuity, but they allow for more benefits in the case of strong investment returns which means the owner will receive larger future cash flows when the investments of the annuity do well. In comparison, if the annuity fund does poorly, payments will be smaller.
period of time during which an investor cannot withdraw funds from an annuity instrument without paying a fee or ‘surrender charge.’