Retirement & Benefits

44 Retirement & Benefits terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.

401(k): A 401(k) is a US workplace retirement plan funded by payroll deductions, usually with an employer match and a tax break on contributions.
401(k) Rollover: A rollover moves a retirement balance from an old employer's plan into an IRA or a new employer's plan without triggering tax.
403(b): A 403(b) is the 401(k) equivalent for public schools, universities, hospitals and nonprofits, with nearly identical contribution limits and tax treatment.
457 Plan: A 457(b) is a deferred compensation plan for state and local government employees, with no 10% early withdrawal penalty once you leave the employer.
529 Plan: A 529 plan grows tax-free and pays out tax-free for qualified education costs, with many US states adding a deduction for contributions.
Auto-Enrolment: Auto-enrolment puts employees into a retirement plan by default, leaving them to opt out rather than opt in.
Backdoor Roth IRA: A backdoor Roth contributes to a traditional IRA without deducting it, then converts to a Roth — a legal route around the Roth income limits.
Bucket Strategy: The bucket strategy splits retirement savings by time horizon: cash for the next couple of years, bonds for the medium term, equities for the long term.
Catch-Up Contribution: Catch-up contributions let savers aged 50 and over exceed the normal limit, on the theory that late-career earnings are highest and time is short.
COBRA: COBRA lets you keep an employer health plan after leaving a job, typically for 18 months, by paying the full premium yourself plus an administration fee.
Contribution Limit: A contribution limit is the annual maximum you can put into a tax-advantaged account, set by statute and usually indexed to inflation.
Deferred Compensation: Deferred compensation is pay you elect to receive in a later year, deferring the tax with it.
Defined Contribution Plan: A defined contribution plan specifies what goes in, not what comes out — the balance at retirement depends on contributions and investment returns.
Early Withdrawal Penalty: The early withdrawal penalty is an extra 10% tax on retirement account distributions taken before age 59½, on top of ordinary income tax.
Employee Stock Options: Employee stock options give the right to buy company shares at a fixed strike price after vesting.
Employee Stock Purchase Plan (ESPP): An ESPP lets employees buy company shares at a discount, typically 15%, often with a lookback that applies it to the lower of two prices.
Employer Match: An employer match is money your employer adds to your retirement account based on what you contribute — commonly 50% or 100% up to a percentage of salary.
ESOP: An ESOP is a retirement plan that invests primarily in the employer's own stock, often used to transition ownership when a founder exits.
Flexible Spending Account (FSA): An FSA lets you set aside pre-tax salary for medical or dependent care costs, saving your marginal rate plus payroll tax.
Full Retirement Age: Full retirement age is when you can claim your unreduced Social Security benefit — 67 for those born in 1960 or later.
Health Savings Account (HSA): An HSA is the only account with three tax advantages at once: deductible contributions, tax-free growth, and tax-free withdrawals for medical costs.
Incentive Stock Options: Incentive stock options can qualify for long-term capital gains treatment on the entire gain if you hold the shares long enough after exercise and grant.
Longevity Risk: Longevity risk is the risk of living longer than your money lasts.
Lump Sum vs Annuity: The lump sum versus annuity choice asks whether to take a pension as one payment you manage or as guaranteed income for life.
Medicare: Medicare is US health coverage from age 65, split into hospital, medical, drug and bundled private plans.
Mega Backdoor Roth: A mega backdoor Roth uses after-tax 401(k) contributions above the normal deferral limit, then converts them to Roth — tens of thousands more sheltered.
Pension (Defined Benefit Plan): A defined benefit pension promises a set income in retirement based on salary and service, with the employer bearing investment and longevity risk.
Qualified Charitable Distribution (QCD): A QCD sends money directly from an IRA to a charity, counting towards your required minimum distribution while never appearing in your income.
Replacement Rate: The replacement rate is the share of pre-retirement income your retirement income covers, with 70–80% the usual planning target.
Required Minimum Distribution (RMD): An RMD is the amount you must withdraw each year from tax-deferred retirement accounts once you reach the required age, so the deferred tax finally gets paid.
Restricted Stock Units (RSUs): RSUs are company shares granted to employees that convert to real stock on a vesting schedule.
Roth Conversion: A Roth conversion moves money from a pre-tax account to a Roth, paying income tax now to make all future growth tax-free.
Roth IRA: A Roth IRA is funded with after-tax money and then grows and pays out entirely tax-free in retirement.
Rule of 55: The rule of 55 lets you withdraw from the 401(k) of the employer you just left, penalty-free, if you leave in or after the year you turn 55.
Safe Withdrawal Rate: A safe withdrawal rate is the percentage of a portfolio you can spend in year one, adjusted for inflation thereafter, without running out.
SEP IRA: A SEP IRA lets a self-employed person or small employer contribute a percentage of compensation — up to 25%, capped in dollars — with almost no administration.
Sequence of Returns Risk: Sequence of returns risk is the danger that poor returns arrive early in retirement, when withdrawals are compounding the damage.
Severance Pay: Severance is compensation paid on termination, commonly framed as a number of weeks per year of service.
SIMPLE IRA: A SIMPLE IRA is a low-admin retirement plan for employers with 100 or fewer staff, requiring a mandatory employer contribution of 2–3% of pay.
Social Security: Social Security is the US government retirement and disability programme funded by payroll taxes, paying an inflation-adjusted income for life.
Solo 401(k): A solo 401(k) covers a business owner with no employees but a spouse, allowing contributions in two capacities at once — as employee and as employer.
Traditional IRA: A traditional IRA is an individual retirement account where contributions may be tax-deductible and growth is tax-deferred until withdrawal.
Variable Annuity: A variable annuity is an insurance contract holding investment sub-accounts, wrapping market exposure in guarantees and tax deferral.
Vesting: Vesting is the process by which employer contributions or equity grants become genuinely yours.

← All 1345 glossary terms